frm10q.htm
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the quarterly period ended March 31,
2009
OR
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the transition period
from
to
Commission File
No. 001-32679
International Coal Group,
Inc.
(Exact Name of Registrant as Specified
in Its Charter)
Delaware
|
|
20-2641185
|
(State or Other Jurisdiction
of
Incorporation or
Organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
300 Corporate Centre
Drive
Scott Depot, West
Virginia
|
|
25560
|
(Address of Principal Executive
Offices)
|
|
(Zip
Code)
|
(304) 760-2400
(Registrant’s Telephone Number,
Including Area Code)
N/A
(Former Name, Former
Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes ¨ No ¨
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer”
and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No x
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the
registrant has filed all documents and reports required to be filed by Sections
12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a
court. Yes ¨ No ¨
APPLICABLE ONLY TO CORPORATE
ISSUERS:
Number of shares of the Registrant’s
Common Stock, $0.01 par value, outstanding as of May 1, 2009—154,149,939.
TABLE OF CONTENTS
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Page
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PART
I—FINANCIAL INFORMATION
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|
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Item 1.
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Financial
Statements
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3
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Item 2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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22
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Item 3.
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Quantitative
and Qualitative Disclosures About Market Risk
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35
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Item 4.
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Controls
and Procedures
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35
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PART
II—OTHER INFORMATION
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Item 1.
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Legal
Proceedings
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36
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Item 1A.
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Risk
Factors
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37
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Item 2.
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Unregistered Sales of Equity Securities and
Use of Proceeds
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38
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Item 6.
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Exhibits
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39
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2
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share
amounts)
|
|
March 31,
2009
|
|
|
December 31,
2008
|
|
ASSETS
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|
|
|
|
|
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CURRENT
ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
66,627
|
|
|
$
|
63,930
|
|
Accounts receivable, net of
allowances of $1,407
and
$1,516
|
|
|
95,728
|
|
|
|
75,321
|
|
Inventories,
net
|
|
|
67,242
|
|
|
|
58,788
|
|
Deferred income
taxes
|
|
|
16,958
|
|
|
|
17,649
|
|
Prepaid
insurance
|
|
|
8,957
|
|
|
|
13,380
|
|
Income taxes
receivable
|
|
|
11
|
|
|
|
8,030
|
|
Prepaid expenses and
other
|
|
|
11,228
|
|
|
|
10,893
|
|
Total current
assets
|
|
|
266,751
|
|
|
|
247,991
|
|
|
|
|
|
|
|
|
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|
PROPERTY, PLANT, EQUIPMENT AND
MINE DEVELOPMENT, net
|
|
|
1,057,902
|
|
|
|
1,069,297
|
|
DEBT ISSUANCE COSTS,
net
|
|
|
10,310
|
|
|
|
10,462
|
|
ADVANCE ROYALTIES,
net
|
|
|
17,405
|
|
|
|
17,462
|
|
OTHER NON-CURRENT
ASSETS
|
|
|
5,483
|
|
|
|
5,435
|
|
Total
assets
|
|
$
|
1,357,851
|
|
|
$
|
1,350,647
|
|
|
|
|
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|
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LIABILITIES AND STOCKHOLDERS’
EQUITY
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CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
69,196
|
|
|
$
|
75,810
|
|
Short-term
debt
|
|
|
3,026
|
|
|
|
4,741
|
|
Current portion of long-term debt
and capital leases
|
|
|
18,292
|
|
|
|
15,319
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|
Current portion of reclamation and
mine closure costs
|
|
|
10,976
|
|
|
|
11,139
|
|
Current portion of employee
benefits
|
|
|
3,359
|
|
|
|
3,359
|
|
Accrued expenses and
other
|
|
|
87,234
|
|
|
|
87,704
|
|
Total current
liabilities
|
|
|
192,083
|
|
|
|
198,072
|
|
|
|
|
|
|
|
|
|
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LONG-TERM DEBT AND CAPITAL
LEASES
|
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|
424,671
|
|
|
|
417,551
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|
RECLAMATION AND MINE CLOSURE
COSTS
|
|
|
68,398
|
|
|
|
68,107
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|
EMPLOYEE
BENEFITS
|
|
|
63,768
|
|
|
|
61,194
|
|
DEFERRED INCOME
TAXES
|
|
|
49,852
|
|
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|
49,403
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|
BELOW-MARKET COAL SUPPLY
AGREEMENTS
|
|
|
41,139
|
|
|
|
43,888
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|
OTHER NON-CURRENT
LIABILITIES
|
|
|
6,605
|
|
|
|
6,195
|
|
Total
liabilities
|
|
|
846,516
|
|
|
|
844,410
|
|
|
|
|
|
|
|
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COMMITMENTS AND
CONTINGENCIES
|
|
|
—
|
|
|
|
—
|
|
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|
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STOCKHOLDERS’
EQUITY:
|
|
|
|
|
|
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Preferred stock – par value $0.01,
200,000,000 shares authorized, none issued
|
|
|
—
|
|
|
|
—
|
|
Common stock – par value $0.01,
2,000,000,000 shares authorized, 154,159,777 and
154,155,009 shares issued and outstanding,
respectively, as of March 31, 2009 and 153,322,245 shares issued and
outstanding, as of
December 31, 2008
|
|
|
1,541
|
|
|
|
1,533
|
|
Treasury
stock
|
|
|
(8
|
)
|
|
|
—
|
|
Additional paid-in
capital
|
|
|
658,329
|
|
|
|
656,997
|
|
Accumulated other comprehensive
loss
|
|
|
(5,113
|
)
|
|
|
(5,157
|
)
|
Retained
deficit
|
|
|
(143,478
|
)
|
|
|
(147,171
|
)
|
Total International Coal Group, Inc.
stockholders’
equity
|
|
|
511,271
|
|
|
|
506,202
|
|
Noncontrolling
interest
|
|
|
64
|
|
|
|
35
|
|
Total stockholders’
equity
|
|
|
511,335
|
|
|
|
506,237
|
|
Total liabilities and
stockholders’ equity
|
|
$
|
1,357,851
|
|
|
$
|
1,350,647
|
|
See notes to condensed consolidated
financial statements.
3
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
Condensed Consolidated Statements of
Operations (Unaudited)
(Dollars in thousands, except per share
amounts)
|
|
Three months
ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
Coal sales
revenues
|
|
$
|
273,816
|
|
|
$
|
226,604
|
|
Freight and handling
revenues
|
|
|
8,634
|
|
|
|
11,283
|
|
Other
revenues
|
|
|
22,516
|
|
|
|
14,038
|
|
Total
revenues
|
|
|
304,966
|
|
|
|
251,925
|
|
COSTS AND
EXPENSES:
|
|
|
|
|
|
|
|
|
Cost of coal
sales
|
|
|
231,965
|
|
|
|
208,804
|
|
Freight and handling
costs
|
|
|
8,634
|
|
|
|
11,283
|
|
Cost of other
revenues
|
|
|
9,336
|
|
|
|
8,935
|
|
Depreciation, depletion and
amortization
|
|
|
26,263
|
|
|
|
21,957
|
|
Selling, general and
administrative
|
|
|
10,611
|
|
|
|
8,526
|
|
Gain on sale of assets,
net
|
|
|
(78
|
)
|
|
|
(211
|
)
|
Total costs and
expenses
|
|
|
286,731
|
|
|
|
259,294
|
|
Income (loss) from
operations
|
|
|
18,235
|
|
|
|
(7,369
|
)
|
INTEREST EXPENSE, net
|
|
|
(13,018
|
)
|
|
|
(12,571
|
)
|
Income (loss) before
income
taxes
|
|
|
5,217
|
|
|
|
(19,940
|
)
|
INCOME TAX (EXPENSE)
BENEFIT
|
|
|
(1,495
|
)
|
|
|
8,034
|
|
Net income
(loss)
|
|
|
3,722
|
|
|
|
(11,906
|
)
|
Net income attributable to
noncontrolling interest
|
|
|
(29
|
)
|
|
|
(7
|
)
|
Net income (loss) attributable to International
Coal Group, Inc.
|
|
$
|
3,693
|
|
|
$
|
(11,913
|
)
|
|
|
|
|
|
|
|
|
|
Earnings per
share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.02
|
|
|
$
|
(0.08
|
)
|
Diluted
|
|
$
|
0.02
|
|
|
$
|
(0.08
|
)
|
Weighted-average common shares
outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
152,773,718
|
|
|
|
152,448,665
|
|
Diluted
|
|
|
153,856,166
|
|
|
|
152,448,665
|
|
See notes to condensed consolidated
financial statements.
4
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
Condensed Consolidated Statements of
Cash Flows (Unaudited)
(Dollars in
thousands)
|
|
Three months ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
3,722
|
|
|
$
|
(11,906
|
)
|
Adjustments to reconcile net
income (loss) to net cash from operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation, depletion and
amortization
|
|
|
26,263
|
|
|
|
21,957
|
|
Amortization of deferred finance
costs and debt
discount
|
|
|
1,664
|
|
|
|
1,488
|
|
Provision for bad
debt
|
|
|
(110
|
)
|
|
|
—
|
|
Compensation expense on
equity
instruments
|
|
|
1,340
|
|
|
|
1,303
|
|
Gain on sale of assets,
net
|
|
|
(78
|
)
|
|
|
(211
|
)
|
Deferred income
taxes
|
|
|
1,111
|
|
|
|
(8,033
|
)
|
Amortization of accumulated
postretirement benefit obligation
|
|
|
73
|
|
|
|
107
|
|
Changes in assets and
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(20,297
|
)
|
|
|
(21,100
|
)
|
Inventories
|
|
|
(8,454
|
)
|
|
|
(3,681
|
)
|
Prepaid expenses and
other
|
|
|
12,107
|
|
|
|
2,881
|
|
Other non-current
assets
|
|
|
124
|
|
|
|
(2,471
|
)
|
Accounts
payable
|
|
|
(1,609
|
)
|
|
|
(1,281
|
)
|
Accrued expenses and
other
|
|
|
(470
|
)
|
|
|
3,688
|
|
Reclamation and mine closure
costs
|
|
|
128
|
|
|
|
(542
|
)
|
Other
liabilities
|
|
|
2,984
|
|
|
|
(180
|
)
|
Net cash from operating
activities
|
|
|
18,498
|
|
|
|
(17,981
|
)
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from the sale of
assets
|
|
|
78
|
|
|
|
99
|
|
Additions to property, plant,
equipment and mine development
|
|
|
(18,815
|
)
|
|
|
(34,069
|
)
|
Withdrawals (deposits) of restricted
cash
|
|
|
(115
|
)
|
|
|
88
|
|
Net cash from investing
activities
|
|
|
(18,852
|
)
|
|
|
(33,882
|
)
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayments on short-term
debt
|
|
|
(1,715
|
)
|
|
|
—
|
|
Borrowings on long-term debt and
capital leases
|
|
|
9,085
|
|
|
|
—
|
|
Repayments on long-term
debt and capital
leases
|
|
|
(3,800
|
)
|
|
|
(1,046
|
)
|
Purchases of treasury
stock
|
|
|
(8
|
)
|
|
|
—
|
|
Debt issuance
costs
|
|
|
(511
|
)
|
|
|
(33
|
)
|
Net cash from financing
activities
|
|
|
3,051
|
|
|
|
(1,079
|
)
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS
|
|
|
2,697
|
|
|
|
(52,942
|
)
|
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
|
|
|
63,930
|
|
|
|
107,150
|
|
CASH AND CASH EQUIVALENTS, END OF
PERIOD
|
|
$
|
66,627
|
|
|
$
|
54,208
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information:
|
|
|
|
|
|
|
|
|
Cash paid for interest (net of
amount capitalized)
|
|
$
|
20,615
|
|
|
$
|
18,511
|
|
Cash (paid) received for income taxes,
net
|
|
$
|
8,186
|
|
|
$
|
(1
|
)
|
Supplemental disclosure of
non-cash items:
|
|
|
|
|
|
|
|
|
Purchases of property, plant,
equipment and mine development through accounts
payable
|
|
$
|
7,937
|
|
|
$
|
4,741
|
|
Purchases of property, plant,
equipment and mine development through financing
arrangements
|
|
$
|
3,807
|
|
|
$
|
—
|
|
See notes to condensed consolidated
financial statements.
5
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
(Dollars in thousands, except per share
amounts)
(1) Basis of
Presentation
The accompanying interim condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for interim financial reporting and
include the accounts of International Coal Group, Inc. and its subsidiaries (the
“Company”) and its controlled affiliates. Significant intercompany transactions,
profits and balances have been eliminated in consolidation. The Company accounts
for its undivided interest in coalbed methane wells using the proportionate
consolidation method, whereby its share of assets, liabilities, revenues and
expenses are included in the appropriate classification in the financial
statements.
The accompanying interim condensed
consolidated financial statements as of March 31, 2009 and for the three months
ended March 31, 2009 and 2008, and the notes thereto, are unaudited. However, in
the opinion of management, these financial statements reflect all normal,
recurring adjustments necessary for a fair presentation of the results of the
periods presented. The balance sheet information as of December 31, 2008
has been derived from the Company’s audited consolidated balance sheet. These
statements should be read in conjunction with the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2008. The results of
operations for the three months ended March 31, 2009 are not necessarily
indicative of the results to be expected for future quarters or for the year
ending December 31, 2009.
(2) Summary of Significant Accounting
Policies and General
Fair Value
Measurements—In September
2006, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 157, Fair Value
Measurements (“SFAS
No. 157”). SFAS No. 157 clarifies the definition of fair value,
establishes a framework for measuring fair value and expands the disclosures on
fair value measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. Adoption of SFAS No. 157 did not
have a material impact on the Company’s financial position, results of
operations or cash flows; however, adoption did result in additional information
being included in the footnotes accompanying the Company’s consolidated
financial statements. See
Note 9.
In February 2008, the FASB issued FASB
Staff Position (“FSP”) FAS
No. 157-2, Effective Date of
FASB Statement No. 157
(“FSP FAS No. 157-2”). FSP FAS No. 157-2 permits delayed adoption of SFAS
No. 157 for certain non-financial assets and
liabilities, which are not recognized at fair value on a recurring basis, until
fiscal years, and interim periods within those fiscal years, beginning after
November 15, 2008. Adoption of FSP FAS No. 157-2 did not have a material impact on
the Company’s financial position, results of operations or cash
flows.
In October 2008, the FASB issued FSP
FAS No. 157-3,
Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not
Active (“FSP FAS No. 157-3”). FSP FAS No. 157-3 clarified the application of SFAS
No. 157 in an inactive market. It demonstrated how the fair value of a financial
asset is determined when the market for that financial asset is inactive. FSP
FAS No. 157-3 was effective upon issuance,
including prior periods for which financial statements had not been issued.
Adoption of FSP FAS No.
157-3 did not have a
material impact on the Company’s financial position, results of operations or
cash flows.
6
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
(Dollars in thousands, except per share
amounts)
In April 2009, the FASB issued FSP FAS
No. 157-4, Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly (“FSP FAS No.
157-4”). FSP FAS No. 157-4 provides additional guidance on estimating fair value
when the volume and level of activity for an asset or liability have
significantly decreased in relation to normal market activity for the asset or
liability. FSP FAS No. 157-4 also provides additional guidance on circumstances
that may indicate that a transaction is not orderly. FSP FAS No. 157-4 is
effective for interim and annual periods ending after June 15, 2009. The Company
does not believe that adoption of FSP FAS No. 157-4 will materially impact the
Company’s financial position, results of operations or cash
flows.
Convertible
Debt—In May 2008, the FASB
issued FSP APB 14-1, Accounting for
Convertible Debt Instruments That May be Settled in Cash Upon Conversion
(Including Partial Cash Settlement) (“FSP APB 14-1”). FSP APB 14-1 requires
the liability and equity components of convertible debt instruments that may be
settled in cash upon conversion to be separately accounted for in a manner that
reflects the issuer’s nonconvertible debt borrowing rate. To allocate the
proceeds from a convertible debt offering in this manner, a company would first
need to determine the carrying amount of the liability component, which would be
based on the fair value of a similar liability, excluding any embedded
conversion options. The resulting debt discount would be amortized over the
period during which the debt is expected to be outstanding as additional
non-cash interest expense. FSP APB 14-1 was effective for financial
statements for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years, and has been applied retrospectively for all periods
presented. The Company has determined its non-convertible borrowing rate would
have been 11.7% at issuance. The effect of adoption of FSP APB 14-1 was as follows:
|
|
December 31,
2008
|
|
|
|
As Previously
Reported
|
|
|
Adjustment
|
|
|
As
Adjusted
|
|
Property, plant, equipment and
mine development
|
|
$
|
1,068,146
|
|
|
$
|
1,151
|
|
|
$
|
1,069,297
|
|
Debt issuance costs,
net
|
|
|
10,635
|
|
|
|
(173
|
)
|
|
|
10,462
|
|
Total
assets
|
|
|
1,349,669
|
|
|
|
978
|
|
|
|
1,350,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital
leases
|
|
|
434,920
|
|
|
|
(17,369
|
)
|
|
|
417,551
|
|
Deferred tax
liability
|
|
|
42,468
|
|
|
|
6,935
|
|
|
|
49,403
|
|
Total
liabilities
|
|
|
854,844
|
|
|
|
(10,434
|
)
|
|
|
844,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in-capital
|
|
|
643,480
|
|
|
|
13,517
|
|
|
|
656,997
|
|
Retained
deficit
|
|
|
(145,066
|
)
|
|
|
(2,105
|
)
|
|
|
(147,171
|
)
|
Total International Coal Group, Inc.
stockholders’
equity
|
|
|
494,790
|
|
|
|
11,412
|
|
|
|
506,202
|
|
Total liabilities and
stockholders’ equity
|
|
|
1,349,669
|
|
|
|
978
|
|
|
|
1,350,647
|
|
|
|
Three months
ended
March 31,
2008
|
|
|
|
As Previously
Reported
|
|
|
Adjustment
|
|
|
As
Adjusted
|
|
Interest expense,
net
|
|
$
|
(11,981
|
)
|
|
$
|
(590
|
)
|
|
$
|
(12,571
|
)
|
Income tax
benefit
|
|
|
7,811
|
|
|
|
223
|
|
|
|
8,034
|
|
Net loss
|
|
|
(11,546
|
)
|
|
|
(367
|
)
|
|
|
(11,913
|
)
|
7
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
(Dollars in thousands, except per share
amounts)
Business
Combinations—In December
2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations (“SFAS
No. 141(R)”). SFAS No. 141(R) will significantly change the accounting
for business combinations. Under SFAS No. 141(R), an acquiring entity will
be required to recognize all the assets acquired and liabilities assumed in a
transaction at the acquisition-date fair value with limited exceptions. SFAS
No. 141(R) will change the accounting treatment for certain specific
acquisition-related items including: (i) expensing acquisition-related
costs as incurred, (ii) valuing noncontrolling interests at fair value at
the acquisition date and (iii) expensing restructuring costs associated
with an acquired business. SFAS No. 141(R) also includes a substantial
number of new disclosure requirements. SFAS No. 141(R) is to be applied to
any business combination for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after
December 15, 2008. Adoption of SFAS No. 141(R) will impact the accounting for the Company’s
future business combinations, as well as for tax uncertainties and
valuation allowances from prior acquisitions.
Noncontrolling
Interests—In December 2007,
the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements (“SFAS No. 160”). SFAS
No. 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary
(minority interest) is an ownership interest in the consolidated entity that
should be reported as equity in the consolidated financial statements and
separate from the parent company’s equity. Among other requirements, this
statement requires consolidated net income to be reported at amounts that
include the amounts attributable to both the parent and the noncontrolling
interest. It also requires disclosure, on the face of the consolidated statement
of operations, of the amounts of consolidated net income attributable to the
parent and to the noncontrolling interest. SFAS No. 160 is effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. Adoption of SFAS No. 160
impacted the presentation
of noncontrolling interest in the Company’s balance sheet and statements of
operations and cash flows. The impact of the changes in presentation was not
material.
Derivative
Instruments—In March 2008,
the FASB issued SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities – an amendment of FASB Statement
No. 133 (“SFAS
No. 161”). SFAS No. 161 requires additional disclosures for derivative
instruments and hedging activities that include how and why an entity uses
derivatives, how these instruments and the related hedged items are accounted
for under FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, and related interpretations and how
derivative instruments and related hedged items affect the entity’s financial
position, results of operations and cash flows. SFAS No. 161 is effective
for fiscal years, and interim periods within those fiscal years, beginning after
November 15, 2008. Adoption of SFAS No. 161 did not impact the
footnotes accompanying the Company’s consolidated financial
statements.
GAAP
Hierarchy—In May 2008,
the FASB issued SFAS No. 162, The Hierarchy of
Generally Accepted Accounting Principles (“SFAS No. 162”). SFAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles. SFAS No. 162 directs the hierarchy to the
entity, rather than the independent auditors, as the entity is responsible for
selecting accounting principles for financial statements that are presented in
conformity with generally accepted accounting principles. SFAS No. 162 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Adoption of SFAS No. 162 did not
have a material impact on the Company’s financial position, results of
operations or cash flows.
8
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
(Dollars in thousands, except per share
amounts)
Share-Based
Payments—In June 2008, the
FASB issued FSP
EITF 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities
(“FSP EITF 03-6-1”). FSP EITF 03-6-1 clarifies that all
outstanding unvested share-based payment awards that contain rights to
nonforfeitable dividends participate in undistributed earnings with common
shareholders. Awards of this nature are considered participating securities and
the two-class method of computing basic and diluted earnings per share must be
applied. FSP EITF 03-6-1 is effective for fiscal
years beginning after December 15, 2008. Adoption of FSP EITF 03-6-1 did not have a material
impact on the Company’s financial position, results of operations or cash flows.
Financial
Instruments—In June 2008,
the FASB ratified EITF 07-5, Determining Whether
an Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own
Stock (“EITF 07-5”). EITF
07-5 provides that an entity should use a two step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instrument’s contingent exercise and
settlement provisions. It also clarifies the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning
after December 15, 2008. Adoption of EITF 07-5 did not have a material impact on
the Company’s financial position, results of operations or cash
flows.
Impairments—In April 2009, the FASB issued FSP FAS
No. 115-2 and FAS No. 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments (“FSP FAS No. 115-2 and FAS No.
124-2”). FSP FAS No. 115-2 and FAS No. 124-2 modifies the other-than-temporary
impairment guidance for debt securities through increased consistency in the
timing of impairment recognition and enhanced disclosures related to the credit
and noncredit components of impaired debt securities that are not expected to be
sold. In addition, increased disclosures are required for both debt and equity
securities regarding expected cash flows, credit losses and an aging of
securities with unrealized losses. FSP FAS No. 115-2 and FAS No. 124-2 is
effective for interim and annual reporting periods that end after June 15, 2009.
The Company does not believe that adoption of FSP FAS No. 115-2 and FAS No.
124-2 will materially impact the Company’s financial position, results of
operations or cash flows.
Fair Value
Instruments—In April 2009, the FASB issued FSP FAS
No. 107-1 and APB 28-1, Interim Disclosures
about Fair Value of Financial Instruments (“FSP FAS No. 107-1 and APB 28-1”). FSP
FAS No. 107-1 and APB 28-1 requires fair value disclosures for financial
instruments that are not reflected in the condensed consolidated balance sheets
at fair value to be disclosed on a quarterly basis, providing quantitative and
qualitative information about fair value estimates. FSP FAS No. 107-1 and APB
28-1 is effective for interim reporting periods ending after June 15, 2009. The
Company does not believe that adoption of FSP FAS No. 107-1 and APB 28-1 will
materially impact the Company’s financial position, results of operations or
cash flows.
(3) Inventories
Inventories consisted of the
following:
|
|
March 31,
2009
|
|
|
December 31,
2008
|
|
Coal
|
|
$
|
34,797
|
|
|
$
|
28,436
|
|
Parts and
supplies
|
|
|
34,344
|
|
|
|
32,159
|
|
Reserve for obsolescence–parts and
supplies
|
|
|
(1,899
|
)
|
|
|
(1,807
|
)
|
Total
|
|
$
|
67,242
|
|
|
$
|
58,788
|
|
9
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
(Dollars in thousands, except per share
amounts)
(4) Property, Plant, Equipment and
Mine Development
Property, plant, equipment and mine
development are summarized by major classification as
follows:
|
|
March 31,
2009
|
|
|
December 31,
2008
|
|
Coal lands and mineral
rights
|
|
$
|
586,512
|
|
|
$
|
586,512
|
|
Plant and
equipment
|
|
|
583,339
|
|
|
|
571,083
|
|
Mine
development
|
|
|
185,176
|
|
|
|
181,876
|
|
Land and land
improvements
|
|
|
24,361
|
|
|
|
24,119
|
|
Coalbed methane well development
costs
|
|
|
14,889
|
|
|
|
14,889
|
|
|
|
|
1,394,277
|
|
|
|
1,378,479
|
|
Less accumulated depreciation,
depletion and amortization
|
|
|
(336,375
|
)
|
|
|
(309,182
|
)
|
Net property, plant, equipment and
mine development
|
|
$
|
1,057,902
|
|
|
$
|
1,069,297
|
|
Depreciation, depletion and amortization
expense related to property, plant, equipment and mine development for the three
months ended March 31, 2009 and 2008 was $29,011 and $26,478,
respectively.
(5) Debt
Long-Term Debt and Capital
Leases
Long-term debt and capital leases consisted of the
following:
|
|
March 31,
2009
|
|
|
December 31,
2008
|
|
9.00% Convertible Senior Notes,
due 2012, net of debt
discount of $16,367 and $17,369, respectively
|
|
$
|
208,633
|
|
|
$
|
207,631
|
|
10.25% Senior Notes, due
2014
|
|
|
175,000
|
|
|
|
175,000
|
|
Equipment
notes
|
|
|
53,300
|
|
|
|
43,378
|
|
Capital leases and
other
|
|
|
6,030
|
|
|
|
6,861
|
|
Total
|
|
|
442,963
|
|
|
|
432,870
|
|
Less current
portion
|
|
|
(18,292
|
)
|
|
|
(15,319
|
)
|
Long-term debt and capital
leases
|
|
$
|
424,671
|
|
|
$
|
417,551
|
|
Convertible
senior notes—In 2007, the Company completed a
private offering of $225,000 aggregate principal amount of 9.00% Convertible
Senior Notes (the “Convertible Notes”) due 2012. The Convertible Notes are the
Company’s senior unsecured obligations and are guaranteed on a senior unsecured
basis by the Company’s material current and future domestic subsidiaries. The
Convertible Notes and the related guarantees rank equal in right of payment to
all of the Company’s and the guarantors’ respective existing and future
unsecured senior indebtedness. Interest is payable semi-annually in arrears on
February 1 and August 1 of each year. The Company assesses the convertibility of the Convertible Notes on an ongoing basis. The Convertible Notes were not
convertible as of March 31, 2009.
10
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
(Dollars in thousands, except per share
amounts)
The principal amount of the Convertible
Notes is payable in cash and amounts above the principal amount, if any, will be
convertible into shares of the Company’s common stock or, at the Company’s
option, cash. The Convertible Notes are convertible at an initial conversion
price, subject to adjustment, of $6.10 per share (approximating 163.8136 shares
per one thousand dollar principal amount of the Convertible Notes). The volume
weighted-average price of the Company’s stock subsequent to the expiration date
of the conversion period was below $6.10 per share. Accordingly, there were no
potentially convertible shares at March 31, 2009. The Convertible Notes are
convertible upon the occurrence of certain events, including (i) prior to
February 12, 2012 during any calendar quarter after September 30,
2007, if the closing sale price per share of the Company’s common stock for each
of 20 or more trading days in a period of 30 consecutive trading days ending on
the last trading day of the immediately preceding calendar quarter exceeds 130%
of the conversion price in effect on the last trading day of the immediately
preceding calendar quarter; (ii) prior to February 12, 2012 during the
five consecutive business days immediately after any five consecutive trading
day period in which the average trading price for the notes on each day during
such five trading-day period was equal to or less than 97% of the closing sale
price of the Company’s common stock on such day multiplied by the then current
conversion rate; (iii) upon the occurrence of specified corporate
transactions; and (iv) at any time from, and including February 1,
2012 until the close of business on the second business day immediately
preceding August 1, 2012. In addition, upon events defined as a
“fundamental change” under the Convertible Notes indenture, the Company may be
required to repurchase the Convertible Notes at a repurchase price in cash equal
to 100% of the principal amount of the notes to be repurchased, plus any accrued
and unpaid interest to, but excluding, the fundamental change repurchase date.
As such, in the event of a fundamental change or the aforementioned average pricing
thresholds are met, the Company would be required to classify the entire amount
outstanding of the Convertible Notes as a current liability in the following
quarter. In the event that a significant number of the holders of the
Convertible Notes were to convert their notes prior to maturity, the Company may
not have enough available funds at any particular time to make the required
repayments. Under these circumstances, the Company would look to WL Ross & Co. LLC (“WLR”), its banking group and other potential
lenders to obtain short-term funding until such time that it could secure
necessary financing on a long-term basis. The availability of any such financing
would depend upon the circumstances at the time, including the terms of any such
financing, and other factors. In addition, if conversion occurs in connection
with certain changes in control, the Company may be required to deliver
additional shares of the Company’s common stock (a “make whole” premium) by
increasing the conversion rate with respect to such notes. For a discussion
of the effects of the Convertible Notes on earnings per share, see Note
10.
Effective January 1, 2009, the Company
adopted FSP APB 14-1 (see Note 2). FSP APB 14-1 requires disclosure of the
carrying amount of the equity component of the related convertible debt, as well
as the interest expense resulting from amortization of the debt discount and
interest expense recognized on the principal amount of the debt. As of March 31,
2009 and 2008, the equity component of the convertible debt was $13,517 and is
included in additional paid-in capital. For the three months ended March 31,
2009 and 2008 interest expense resulting from amortization of the debt discount
was $1,002 and $893, respectively. For both the three months ended March 31,
2009 and 2008, interest expense on the principal amount of the Convertible Notes
was $5,063.
11
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
(Dollars in thousands, except per share
amounts)
Credit facility—The Company is party to a $100,000 revolving credit facility (the “Credit Facility”) which matures on June 23,
2011. A maximum of $80,000 may be used for
letters of credit. In February 2009, the Company executed an amendment to the Credit Facility that
affected certain 2009 debt covenants. The amendment modified the maximum
permitted leverage and minimum interest coverage ratios. The amendment also
decreased the maximum capital spending and added a minimum liquidity
requirement. Debt covenants for years subsequent to 2009 were not affected by
the amendment. As of March 31, 2009, the Company had no borrowings outstanding
and letters of credit totaling $73,551 outstanding, leaving $26,449 available for future borrowing
capacity. Interest on the borrowings under the Credit Facility is payable, at
the Company’s option, at either the base rate plus an applicable
margin of 2.25% to 3.00% based on the Company’s
leverage ratio as of March 31, 2009 or LIBOR plus an applicable
margin of 3.25% to 4.00% based on the Company’s
leverage ratio as of March
31, 2009. As of March 31,
2009, the Company was in compliance with its financial covenants under the
Credit Facility.
Equipment
notes—The equipment notes, having various
maturity dates extending to February 2014, are collateralized by mining
equipment. As of March 31, 2009, the Company had amounts outstanding
with terms ranging from
36 to 60 months and a weighted-average interest rate of
7.21%. At March 31, 2009, additional funds
are available under the Company’s revolving equipment credit facility for terms
ranging from 36 to 60 months with a current interest rate of 8.25%.
Capital leases and
other—The Company leases certain mining
equipment under capital lease. The Company imputed interest on its capital lease using
a rate of 10.44% in order to reduce the net minimum
lease payments to
their present
values. Additionally, the Company finances
certain of its annual insurance premiums at a current interest rate of
5.42%.
Short-Term Debt
The Company finances the majority of its
insurance premiums, a portion of which is included in short-term debt. The
weighted-average interest rate applicable to the notes was 4.75%. As of March 31, 2009 and
December 31, 2008, the Company had $3,026 and $4,741, respectively, outstanding related to
the financing of
insurance premiums.
(6) Income Taxes
The effective income tax rate for the
three months ended March 31, 2009 was calculated using an estimated annual
effective rate based on projected earnings for the year. The effective income
tax rate for the three months ended March 31, 2009 decreased to 29% from 40% for the three months ended March
31, 2008. The decrease was primarily a result of the effect of
income tax deductions for depletion of mineral rights on projected earnings
offset by an increase in other non-deductible expenses and miscellaneous
items.
12
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
(Dollars in thousands, except per share
amounts)
(7) Employee Stock
Awards
The Company’s 2005 Equity and
Performance Incentive Plan (the “Plan”) permits the granting of stock options,
restricted shares, stock appreciation rights, restricted share units,
performance shares or performance units to its employees for up to 8,000,000
shares of common stock. Option awards are generally granted with an exercise
price equal to the market price of the Company’s stock at the date of grant and
have 10-year contractual terms. The option and restricted stock awards generally
vest in equal annual installments of 25% over a four-year period. The Company
recognizes expense related to the awards on a straight-line basis over the
vesting period. The Company issues new shares or uses shares held in
treasury upon the exercise
of option awards.
The Black-Scholes option pricing model
was used to calculate the estimated fair value of the options granted. The
estimated grant date fair value of the options granted during the three months
ended March 31, 2009 and 2008 was calculated using the following
assumptions:
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Expected term (in
years)
|
|
|
5
|
|
|
|
5
|
|
Weighted-average expected
volatility
|
|
|
50.8
|
%
|
|
|
43.0
|
%
|
Risk-free
rate
|
|
|
1.4% – 1.9
|
%
|
|
|
2.7% – 3.2
|
%
|
Expected
dividends
|
|
|
—
|
|
|
|
—
|
|
The Company estimated forfeiture
rates of 4.50% and 3.25% at March 31, 2009
and 2008, respectively.
Due to the Company’s limited operating
history, the expected lives and volatility are estimated based on other
companies in the coal industry. The risk-free interest rates are based on the
rates of zero coupon U.S. Treasury bonds with similar maturities on the date of
grant. The estimated
forfeiture rates were determined based on historical turnover of the Company’s employees
eligible under the plan.
Stock-based employee compensation
expense of $834
and $782, net of tax of
$506 and $521, related to the issuance of all stock-based
awards outstanding was
included in earnings for the three months ended March 31, 2009 and 2008,
respectively.
A summary of the Company’s outstanding
options as of March 31, 2009, and changes during the three months ended March
31, 2009, is as follows:
Options
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
(years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at January 1,
2009
|
|
|
2,831,192 |
|
|
$ |
7.88 |
|
|
|
|
|
|
|
Granted
|
|
|
2,307,556 |
|
|
|
1.53 |
|
|
|
|
|
|
|
Forfeited
|
|
|
(10,975
|
) |
|
|
7.17 |
|
|
|
|
|
|
|
Expired
|
|
|
(13,900
|
) |
|
|
8.78 |
|
|
|
|
|
|
|
Outstanding at March 31,
2009
|
|
|
5,113,873 |
|
|
|
5.01 |
|
|
|
8.69 |
|
|
$ |
206 |
|
Vested or expected to vest at March
31, 2009
|
|
|
4,797,819 |
|
|
|
5.11 |
|
|
|
8.65 |
|
|
$ |
188 |
|
Exercisable at March 31,
2009
|
|
|
1,459,187 |
|
|
|
8.98 |
|
|
|
6.97 |
|
|
$ |
— |
|
13
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
(Dollars in thousands, except per share
amounts)
The weighted-average grant-date fair
value of options granted during the three months ended March 31, 2009 and 2008
was $0.73 and $2.46, respectively. There were no
options exercised during the three months ended March 31, 2009 and
2008.
A summary of the status of the Company’s
nonvested restricted stock awards as of March 31, 2009, and changes during the three months
ended March 31, 2009, is as follows:
Nonvested
Shares
|
|
Shares
|
|
|
Weighted-
Average Grant-Date
Fair Value
|
|
Nonvested at January 1,
2009
|
|
|
556,344
|
|
|
$
|
7.00
|
|
Granted
|
|
|
837,697
|
|
|
|
1.53
|
|
Vested
|
|
|
(41,867
|
)
|
|
|
6.38
|
|
Forfeited
|
|
|
(5,600
|
)
|
|
|
7.47
|
|
Nonvested at March 31,
2009
|
|
|
1,346,574
|
|
|
|
3.62
|
|
The weighted-average grant-date fair
value of restricted stock granted during the three months ended March 31, 2009
and 2008 was $1.53 and $6.01, respectively. The total fair
value of restricted stock vested during the three months ended March 31, 2009
and 2008 was $267 and $1,086,
respectively.
As of March 31, 2009, there was
$7,929 of unrecognized compensation cost
related to nonvested stock-based awards that is expected to be recognized over a
weighted-average period of 2.9 years.
The
Plan provides recipients the ability to satisfy tax obligations upon vesting of
shares of restricted stock by having the Company withhold a portion of the
shares otherwise deliverable to the recipients. During the three months ended
March 31, 2009, the Company withheld 4,768 shares of common stock from employees
in connection with tax withholding obligations. The value of the common stock
that was withheld was based upon the closing price of the common stock on the
applicable vesting dates. Such shares were included in treasury stock in the
Company’s condensed consolidated balance sheet.
In
December 2008, the Company’s Board of Directors (the “Board”) approved an annual
restricted share unit grant with a grant date value equal to $50 for each member
of the Board to be granted at the same time as the annual equity awards granted
to executive officers. Each restricted share unit represents a contingent right
to receive one share of issuer common stock upon the six-month anniversary of
the date on which the director ceases to provide services, subject to certain
provisions. The number of shares issuable is calculated by dividing $50 by the
closing stock price of the Company’s common stock on the New York Stock Exchange
on the grant date. Each non-employee director was issued 32,895 restricted share
units on March 3, 2009. The weighted-average grant-date fair value of restricted
share units granted during the three months ended March 31, 2009 was $1.52. The
total fair value of restricted share units vested during the three months ended
March 31, 2009 was $350. There were no restricted share units granted during the
three months ended March 31, 2008.
14
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
(Dollars in thousands, except per share
amounts)
(8) Employee
Benefits
The following table details the
components of the net periodic benefit cost for postretirement benefits other
than pensions for the three months ended March 31, 2009 and
2008.
|
|
Three months ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Net periodic benefit
cost:
|
|
|
|
|
|
|
Service
cost
|
|
$
|
834
|
|
|
$
|
652
|
|
Interest
cost
|
|
|
436
|
|
|
|
407
|
|
Amortization of net
loss
|
|
|
73
|
|
|
|
107
|
|
Benefit
cost
|
|
$
|
1,343
|
|
|
$
|
1,166
|
|
The plan is unfunded, therefore, no
contributions were made by the Company for the three months ended March 31, 2009
and 2008.
(9) Fair Value
Measurements
Effective January 1, 2008, the
Company adopted SFAS No. 157, which clarifies the definition of fair value,
establishes a framework for measuring fair value and expands the disclosures on
fair value measurements. SFAS No. 157 applies whenever other statements
require or permit assets or liabilities to be measured at fair value.
SFAS No. 157 establishes the following fair value hierarchy that
prioritizes the inputs used to measure fair value:
•
|
|
Level 1 –
|
Unadjusted quoted prices for
identical assets or liabilities in active
markets.
|
|
|
|
|
•
|
|
Level 2 –
|
Inputs other than Level 1 that are
based on observable market data, either directly or indirectly. These
include quoted prices for similar assets or liabilities in active markets,
quoted prices for identical assets or liabilities in inactive markets,
inputs that are observable that are not prices and inputs that are derived
from or corroborated by observable markets.
|
|
|
|
|
•
|
|
Level 3 –
|
Developed from unobservable data,
reflecting an entity’s own
assumptions.
|
The Company entered into an Interest
Rate Collar Agreement (the “Collar”) that expired and was settled on March 31, 2009. The interest
rate collar was designed as a cash flow hedge to offset the impact of changes in
the LIBOR interest rate above 5.92% and below 4.80%. The value of the interest
rate collar was based on a forward LIBOR curve, which
was observable at commonly quoted intervals for the full term of the agreement.
The Company recognized the change in the fair value of this
agreement in the period of change. For the three months ended March 31,
2009 and 2008, the Company recorded losses of $6 and $2,725, respectively, related to the change in fair value. The
loss is included in interest expense in the Company’s consolidated statement of
operations.
15
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
(Dollars in thousands, except per share
amounts)
The following table presents the fair
value hierarchy for financial liabilities measured at fair value on a recurring
basis:
|
|
|
|
Fair Value Measurements Using:
|
Interest Rate Collar Agreement, as
of:
|
|
Total
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
March 31,
2009
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
December 31,
2008
|
|
|
1,665
|
|
|
—
|
|
|
1,665
|
|
|
—
|
(10) Earnings Per
Share
Basic earnings per share is computed by
dividing net income available to common shareholders by the weighted-average
number of common shares outstanding during the period, excluding restricted
common stock subject to continuing vesting requirements. Diluted earnings per
share is calculated based on the weighted-average number of common shares
outstanding during the period and, when dilutive, potential common shares from
the exercise of stock options, restricted common stock subject to continuing
vesting requirements,
restricted stock units and
convertible debt, pursuant to the treasury stock method.
Reconciliations of weighted-average
shares outstanding used to compute basic and diluted earnings per share for the
three months ended March 31, 2009 and 2008 are as follows:
|
|
Three months
ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Net income (loss) attributable to International
Coal Group, Inc.
|
|
$
|
3,693
|
|
|
$
|
(11,913
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares
outstanding—basic
|
|
|
152,773,718
|
|
|
|
152,448,665
|
|
Incremental shares arising from
stock options
|
|
|
—
|
|
|
|
—
|
|
Incremental shares arising from
restricted shares
|
|
|
1,082,448
|
|
|
|
—
|
|
Incremental shares arising from
restricted stock
units
|
|
|
—
|
|
|
|
—
|
|
Incremental shares arising from
convertible
notes
|
|
|
—
|
|
|
|
—
|
|
Weighted-average common shares
outstanding—diluted
|
|
|
153,856,166
|
|
|
|
152,448,665
|
|
|
|
|
|
|
|
|
|
|
Earnings Per
Share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.02
|
|
|
$
|
(0.08
|
)
|
Diluted
|
|
$
|
0.02
|
|
|
$
|
(0.08
|
)
|
16
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
(Dollars in thousands, except per share
amounts)
Options to purchase 2,818,317 shares of common stock outstanding at March 31, 2009 have been
excluded from the computation of diluted earnings per share for the three
months then ended because their effect would have
been anti-dilutive. Options to purchase 2,843,262 shares of common stock and
696,445 shares of restricted common stock outstanding at March 31, 2008 have
been excluded from the computation of diluted earnings per share for the three months
then ended because their effect would have been anti-dilutive.
The principal amount of the Convertible
Notes is payable in cash and amounts above the principal amount, if any, will be
convertible into shares of the Company’s common stock or, at the Company’s
option, cash. The volume weighted-average price of the Company’s stock
subsequent to the expiration date of the conversion periods was below $6.10 per share. Accordingly,
there were no potentially dilutive shares at March 31, 2009 or 2008.
(11) Commitments and
Contingencies
Guarantees
and Financial Instruments with Off-balance Sheet Risk—In the normal course of business, the
Company is a party to certain guarantees and financial instruments with
off-balance sheet risk, such as bank letters of credit and performance or surety
bonds. No liabilities related to these arrangements are reflected in the
Company’s condensed consolidated balance sheets. Management does not expect any
material losses to result from these guarantees or off-balance sheet financial
instruments. The Company has outstanding surety bonds with third parties
totaling approximately $120,324 as of March 31, 2009 to secure
reclamation and other performance commitments. As of March 31, 2009, the Company
has bank letters of credit outstanding of $73,551 under its revolving credit
facility.
Legal
Matters—On August 23, 2006, a survivor of
the Sago mine accident, Randal McCloy, filed a complaint in the Kanawha Circuit
Court in Kanawha
County, West Virginia. The claims brought by Randal McCloy
and his family against the
Company and certain of
its subsidiaries, and against W.L.
Ross & Co., and Wilbur L. Ross, Jr., individually, were dismissed on
February 14, 2008, after the parties reached a confidential settlement.
Sixteen other complaints have been filed in Kanawha Circuit Court by the
representatives of many of the miners who died in the Sago mine accident, and
several of these plaintiffs have filed amended complaints to expand the group of
defendants in the cases. The complaints allege various causes of action against
the Company and its subsidiary, Wolf Run Mining Company,
one of its shareholders, W.L. Ross & Co.,
and Wilbur L. Ross Jr., individually, related to the accident and seek
compensatory and punitive damages. In addition, the plaintiffs also allege
causes of action against other third parties, including claims against the
manufacturer of Omega block seals used to seal the area where the explosion
occurred and against the manufacturer of self-contained self-rescuer (“SCSR”)
devices worn by the miners at the Sago mine. Some of these third parties have
been dismissed from the actions upon settlement. The amended complaints add
other of the
Company’s subsidiaries to
the cases, including ICG, Inc., ICG, LLC and Hunter Ridge Coal Company, unnamed
parent, subsidiary and affiliate companies of the Company, W.L. Ross & Co., and Wilbur
L. Ross Jr., and other third parties, including a provider of electrical
services and a supplier of components used in the SCSR devices. The Company believes that it is appropriately insured for these and
other potential claims, and has fully paid its deductible applicable to its insurance policies. In addition to the
dismissal of the McCloy claim, the Company has settled and dismissed five other
actions. These settlements required the release of the Company, its subsidiaries, W.L. Ross & Co.,
and Wilbur L. Ross, Jr. Some of the plaintiffs involved in one of the dismissed
actions have sought permission from the Supreme Court of Appeals of West Virginia to appeal the settlement, alleging that
the settlement negotiated by the decedent’s estate should not have been approved
by the trial court. The trial court overruled those plaintiffs’ objections to
the settlement, and, although the West Virginia Supreme Court of Appeals refused
to stay the effectiveness of the settlement, the plaintiffs’ petition for appeal
to the West Virginia Supreme Court of Appeals was recently presented to the
court. The court has deferred its decision as to whether it will hear the
appeal, pending its ruling on an unrelated case that shares similar issues.
The Company will vigorously defend itself against the remaining complaints and
any appeal of any prior settlements.
17
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
(Dollars in thousands, except per share
amounts)
Allegheny Energy Supply (“Allegheny”),
the sole customer of coal produced at the Company’s subsidiary Wolf Run Mining Company’s
(“Wolf Run”) Sycamore No. 2 mine, filed a lawsuit against Wolf Run, Hunter
Ridge Holdings, Inc. (“Hunter Ridge”), and the Company in state court in Allegheny County,
Pennsylvania on December 28, 2006, and amended its complaint on
April 23, 2007. Allegheny claims that the Company breached a coal supply contract when
it declared force majeure under the
contract upon idling the Sycamore No. 2 mine in the third quarter of 2006.
The Sycamore No. 2 mine was idled after encountering adverse geologic
conditions and abandoned gas wells that were previously unidentified and
unmapped. The amended complaint also alleges that the production stoppages
constitute a breach of the guarantee agreement by Hunter Ridge and breach of
certain representations made upon entering into the contract in early 2005, a
claim that Allegheny has since voluntarily dropped. Allegheny claims that it
will incur costs in excess of $100,000 to purchase replacement coal over the
life of the contract. The
Company, Wolf Run and
Hunter Ridge answered the amended complaint on
August 13, 2007, disputing all of the remaining claims. On November 3, 2008,
the Company, Wolf Run and Hunter Ridge filed an amended answer and
counterclaim against the plaintiffs seeking to void the coal supply agreement
due to, among other things, fraudulent inducement and conspiracy. The
counterclaim alleges further that Allegheny breached a confidentiality agreement
with Hunter Ridge, which prohibited the solicitation of
its employees. After the coal supply agreement was executed, Allegheny hired the
then-president of Anker Coal Group, Inc. (now Hunter Ridge) who engaged in negotiations on behalf
of Wolf Run and Hunter Ridge. In addition to seeking a declaratory
judgment that the coal supply agreement and guaranty be deemed void and
unenforceable and rescission of the contracts, the counterclaim also seeks
compensatory and punitive damages.
On December 6, 2007, the Kentucky
Waterways Alliance, Inc., and The Sierra Club sued the U.S. Army Corps of
Engineers (the “ACOE”) in the United States District Court for the Western
District of Kentucky, Louisville Division, asserting that a permit to construct
five valley fills was issued unlawfully to the Company’s Hazard subsidiary for its Thunder Ridge
Surface mine. The suit alleges that the ACOE failed to comply with the
requirements of both Section 404 of the Clean Water Act and the National
Environmental Policy Act. Hazard intervened in the suit to protect the Company’s interests. The ACOE suspended the
Section 404 permit on December 26, 2007 in order to evaluate the
issues raised by the plaintiffs. The ACOE completed its evaluation on March 25,
2009. Only a day prior, the U.S. Environmental Protection Agency (the
“EPA”) stated its intention
to more closely scrutinize Section 404 permitting decisions by the ACOE. On
March 27, 2009, the
ACOE reinstated Hazard’s
permit. Pursuant to earlier agreements with the plaintiffs in the litigation,
the Company provided thirty (30) days notice to
plaintiffs’ counsel of Hazard’s intent to proceed with activities authorized
under the permit. After
such notice, the plaintiffs have agreed to amend the earlier agreement to
allow Hazard partial use of the reinstated permit, including construction of an
additional valley fill, thus delaying the plaintiffs' move to seek a temporary
restraining order and subsequent injunction to block Hazard’s use of the
permit. If the court ultimately finds that the permit is unlawful,
production could be materially affected at the Thunder Ridge Surface mine.
The EPA’s heightened scrutiny will likely
render the process of obtaining ACOE permits for coal mining activities in
Appalachia more difficult.
On January 7, 2008, Saratoga
Advantage Trust filed a class action lawsuit in the U.S. District Court for the
Southern District of West
Virginia against the Company and certain of its officers and directors. The complaint
asserts claims under Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934, and Rule 10b-5 promulgated thereunder, based on alleged false and
misleading statements in the registration statements filed in connection with
the Company’s November 2005 reorganization and
December 2005 public offering of common stock. In addition, the complaint
challenges other of the
Company’s public statements
regarding its operating condition and safety record.
The Company intends to vigorously defend the
action.
18
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
(Dollars in thousands, except per share
amounts)
On July 3, 2007, Taylor Environmental
Advocacy Membership, Inc. (“T.E.A.M.”) filed a petition to appeal the issuance
of ICG Tygart Valley, LLC’s (“Tygart Valley”) Surface Mine Permit U-2004-06 against
the West Virginia Department of Environmental Protection (the “WVDEP”) in an
action before the West Virginia Surface Mine Board (the “Board”). On December
10, 2007, the Board remanded the permit to the WVDEP for revision to certain
provisions related to pre-mining water monitoring and cumulative hydrologic
impacts. The WVDEP issued a modification on April 1, 2008 addressing those
issues. T.E.A.M. filed an appeal of the WVDEP’s approval of the permit
modification on April 30, 2008. On October 7, 2008, the Board issued an order
remanding the permit to the WVDEP requiring Tygart Valley to address a technical issue related to
projected post-mining water quality. Tygart Valley has prepared and submitted a permit
modification to alleviate the Board’s concerns. All site development has been
suspended until the WVDEP has approved the permit modification. If the
WVDEP issues the permit as modified, there will be additional opportunity for
appeal by T.E.A.M.
In addition, from time to time,
the Company is involved in legal proceedings arising
in the ordinary course of business. These proceedings include assessments of
penalties for citations and orders asserted by MSHA and other regulatory
agencies, none of which are expected by management to, individually or in the
aggregate, have a material adverse effect on the Company. In the opinion of management,
the Company has recorded adequate reserves for
liabilities arising in the ordinary course and it is management’s belief there
is no individual case or group of related cases pending that is likely to have a
material adverse effect on the Company’s financial condition, results of
operations or cash flows.
(12) Related Party Transactions and
Balances
Under an Advisory Services Agreement
dated as of October 1, 2004 between the Company and WLR, WLR has agreed to
provide advisory services to the Company (consisting of consulting and advisory
services in connection with strategic and financial planning, investment
management and administration and other matters relating to the business and
operation of the Company of a type customarily provided by sponsors of U.S.
private equity firms to companies in which they have substantial investments,
including any consulting or advisory services which the Board of Directors
reasonably requests). WLR is paid a quarterly fee of $500 and reimbursed for any
reasonable out-of-pocket expenses (including expenses of third-party advisors
retained by WLR). The agreement is for a period of seven years; however, it may
be terminated upon the occurrence of certain events.
(13) Segment
Information
The Company extracts, processes and
markets steam and metallurgical coal from deep and surface mines for sale to
electric utilities and industrial customers, primarily in the eastern
United States. The Company operates only in the
United States with mines in the Central Appalachian,
Northern Appalachian and Illinois Basin regions. The Company has three
reportable business segments: Central Appalachian, Northern Appalachian and
Illinois Basin. The Company’s Central Appalachian
operations are located in southern West Virginia, eastern Kentucky and western Virginia and include eight mining complexes. The
Company’s Northern Appalachian operations are located in northern West Virginia and Maryland and include four mining complexes. The
Company’s Illinois Basin operations include one mining complex.
The Company also has an Ancillary category, which includes the Company’s
brokered coal functions, corporate overhead, contract highwall mining services
and land activities.
19
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
(Dollars in thousands, except per share
amounts)
Reportable segment results from
continuing operations for the three months ended March 31, 2009 and 2008 and
segment assets as of March 31, 2009 and 2008 were as
follows:
Three months ended March 31,
2009:
|
|
Central
Appalachian
|
|
|
Northern
Appalachian
|
|
|
Illinois
Basin
|
|
|
Ancillary
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
189,562
|
|
|
$
|
66,167
|
|
|
$
|
21,005
|
|
|
$
|
28,232
|
|
|
$
|
304,966
|
|
Adjusted
EBITDA
|
|
|
29,433
|
|
|
|
10,152
|
|
|
|
2,871
|
|
|
|
2,042
|
|
|
|
44,498
|
|
Depreciation, depletion and
amortization
|
|
|
17,590
|
|
|
|
5,575
|
|
|
|
1,710
|
|
|
|
1,388
|
|
|
|
26,263
|
|
Capital
expenditures
|
|
|
9,200
|
|
|
|
5,191
|
|
|
|
1,256
|
|
|
|
1,970
|
|
|
|
17,617
|
|
Total
assets
|
|
|
758,610
|
|
|
|
186,590
|
|
|
|
41,104
|
|
|
|
371,547
|
|
|
|
1,357,851
|
|
Three months ended March 31,
2008:
|
|
Central
Appalachian
|
|
|
Northern
Appalachian
|
|
|
Illinois
Basin
|
|
|
Ancillary
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
155,070
|
|
|
$
|
50,689
|
|
|
$
|
20,640
|
|
|
$
|
25,526
|
|
|
$
|
251,925
|
|
Adjusted
EBITDA
|
|
|
15,578
|
|
|
|
1,795
|
|
|
|
2,348
|
|
|
|
(5,133
|
)
|
|
|
14,588
|
|
Depreciation, depletion and
amortization
|
|
|
15,846
|
|
|
|
2,127
|
|
|
|
1,813
|
|
|
|
2,171
|
|
|
|
21,957
|
|
Capital
expenditures
|
|
|
15,577
|
|
|
|
12,318
|
|
|
|
405
|
|
|
|
1,244
|
|
|
|
29,544
|
|
Total
assets
|
|
|
670,470
|
|
|
|
175,182
|
|
|
|
34,815
|
|
|
|
398,602
|
|
|
|
1,279,069
|
|
Goodwill
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,237
|
|
|
|
30,237
|
|
Revenue in the Ancillary category
consists primarily of $10,720 and $16,697 relating to the Company’s
brokered coal sales and $6,840 and $4,061 relating to contract highwall
mining activities for the three months ended March 31, 2009 and 2008,
respectively. Capital expenditures include non-cash amounts of $11,744 for the three months ended March 31,
2009. Capital expenditures do not include $12,942 and $4,741 paid during the three months ended
March 31, 2009 and 2008,
respectively, related to
capital expenditures accrued in prior periods.
Adjusted EBITDA represents earnings
before deducting interest expense, income taxes, depreciation, depletion,
amortization and noncontrolling interest. Adjusted EBITDA is presented
because it is an important supplemental measure of the Company’s performance
used by the Company’s chief operating decision maker.
Reconciliation of net income
(loss) attributable to
International Coal
Group, Inc. to Adjusted EBITDA for the three months
ended March 31, 2009 and 2008 is as follows:
|
|
Three months
ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Net income (loss) attributable to International
Coal Group, Inc.
|
|
$
|
3,693
|
|
|
$
|
(11,913
|
)
|
Depreciation, depletion and
amortization
|
|
|
26,263
|
|
|
|
21,957
|
|
Interest expense,
net
|
|
|
13,018
|
|
|
|
12,571
|
|
Income tax expense
(benefit)
|
|
|
1,495
|
|
|
|
(8,034
|
)
|
Noncontrolling interest
|
|
|
29
|
|
|
|
7
|
|
Adjusted
EBITDA
|
|
$
|
44,498
|
|
|
$
|
14,588
|
|
20
INTERNATIONAL COAL GROUP, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
March 31, 2009
(Dollars in thousands, except per share
amounts)
(14) Supplementary Guarantor
Information
International Coal Group, Inc. (the
“Parent Company”) issued $175,000 of Senior Notes due 2014 (the “Notes”) in June
2006 and $225,000 of Convertible Senior Notes due 2012 (the “Convertible Notes”)
in July 2007. The Parent Company has no independent assets or operations other
than those related to the issuance, administration and repayment of the Notes
and the Convertible Notes. All subsidiaries of the Parent Company (the
“Guarantors”), except for a minor non-guarantor joint venture, have fully and
unconditionally guaranteed the Notes and the Convertible Notes on a joint and
several basis. The Guarantors are 100% owned, directly or indirectly, by the
Parent Company. Accordingly, condensed consolidating financial information for
the Parent Company and the Guarantors is not presented.
The Notes and the Convertible Notes are
senior obligations of the Parent Company and are guaranteed on a senior basis by
the Guarantors and rank senior in right of payment to the Parent Company’s and
Guarantors’ future subordinated indebtedness. Amounts borrowed under the Amended
Credit Facility are secured by substantially all of the assets of the Parent
Company and the Guarantors on a priority basis, so the Notes and Convertible
Notes are effectively subordinated to amounts borrowed under the Amended Credit
Facility. Other than for corporate related purposes or interest payments
required by the Notes or Convertible Notes, the Amended Credit Facility
restricts the Guarantors’ abilities to make loans or pay dividends to the Parent
Company in excess of $25,000 per year (or at all upon an event of default) and
restricts the ability of the Parent Company to pay dividends. Therefore, all but
$25,000 of the subsidiaries’ assets are restricted assets.
The Parent Company and Guarantors are
subject to certain covenants under the indenture for the Notes. Under these
covenants, the Parent Company and Guarantors are subject to limitations on the
incurrence of additional indebtedness, payment of dividends and the incurrence
of liens, however, the indenture contains no restrictions on the ability of the
Guarantors to pay dividends or make payments to the Parent
Company.
The obligations of the Guarantors are
limited to the maximum amount permitted under bankruptcy law, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
Federal or state law respecting fraudulent conveyance or fraudulent
transfer.
21
Cautionary Note Regarding
Forward-Looking Statements
This Quarterly Report on Form 10-Q
contains forward-looking statements that are not statements of historical fact
and may involve a number of risks and uncertainties. We have used the words
“anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,”
“predict,” “project” and similar terms and phrases, including references to
assumptions, in this report to identify forward-looking statements. These
forward-looking statements are made based on expectations and beliefs concerning
future events affecting us and are subject to uncertainties and factors relating
to our operations and business environment, all of which are difficult to
predict and many of which are beyond our control, that could cause our actual
results to differ materially from those matters expressed in or implied by these
forward-looking statements. The following factors are among those that may cause
actual results to differ materially from our forward-looking
statements:
•
|
market demand for coal,
electricity and steel;
|
|
|
•
|
availability of qualified
workers;
|
|
|
•
|
future economic or capital market
conditions;
|
|
|
•
|
weather conditions or catastrophic
weather-related damage;
|
|
|
•
|
our production
capabilities;
|
|
|
•
|
consummation of financing,
acquisition or disposition transactions and the effect thereof on our
business;
|
|
|
•
|
a significant number of
conversions of our Convertible Senior Notes prior to
maturity;
|
|
|
•
|
our plans and objectives for
future operations and expansion or
consolidation;
|
|
|
•
|
our relationships with, and other
conditions affecting, our customers;
|
|
|
•
|
availability and costs of key
supplies or commodities such as diesel fuel, steel, explosives and
tires;
|
|
|
•
|
availability and costs of capital
equipment;
|
|
|
•
|
prices of fuels which compete with
or impact coal usage, such as oil and natural
gas;
|
|
|
•
|
timing of reductions or increases
in customer coal inventories;
|
|
|
•
|
long-term coal supply
arrangements;
|
|
|
•
|
risks in or related to coal mining
operations, including risks relating to third-party suppliers and carriers
operating at our mines or complexes;
|
|
|
•
|
unexpected maintenance and
equipment failure;
|
|
|
•
|
environmental, safety and other
laws and regulations, including those directly affecting our coal mining
and production, and those affecting our customers’ coal
usage;
|
|
|
•
|
ability to obtain and maintain all
necessary governmental permits and
authorizations;
|
|
|
•
|
competition among coal and other
energy producers in the United States and
internationally;
|
|
|
•
|
railroad, barge, trucking and
other transportation availability, performance and
costs;
|
|
|
•
|
employee benefits costs and labor
relations issues;
|
|
|
•
|
replacement of our
reserves;
|
|
|
•
|
our assumptions concerning
economically recoverable coal reserve
estimates;
|
22
•
|
availability and costs of credit,
surety bonds and letters of credit;
|
|
|
•
|
title defects or loss of leasehold
interests in our properties which could result in unanticipated costs or
inability to mine these properties;
|
|
|
•
|
future legislation and changes in
regulations or governmental policies or changes in interpretations or
enforcement thereof, including with respect to safety enhancements and
environmental initiatives relating to global
warming;
|
|
|
•
|
impairment of the value of our
long-lived and deferred tax assets;
|
|
|
•
|
our liquidity, including the
ability to adhere to financial covenants related to our borrowing
arrangements, results of operations and financial
condition;
|
|
|
•
|
adequacy and sufficiency of our
internal controls; and
|
|
|
•
|
legal and administrative
proceedings, settlements, investigations and claims and the availability
of related insurance
coverage.
|
You should keep in mind that any
forward-looking statement made by us in this Quarterly Report on Form 10-Q
speaks only as of the date on which we make it. New risks and uncertainties
arise from time to time, and it is impossible for us to
predict these events or how they may affect us. We have no duty to, and do not
intend to, update or revise the forward-looking statements in this report after
the date of this report, except as may be required by law. In light of these
risks and uncertainties, you should keep in mind that any forward-looking
statement made in this report might not occur. When considering these
forward-looking statements, you should keep in mind the cautionary statements in
this document and in our other SEC filings, including the more detailed
discussion of these factors, as well as other factors that could affect our
results, contained in Item 3, “Quantitative and Qualitative Disclosures
About Market Risk,” as well as in the “Risks Relating to Our Business” section
of Item 1A of our 2008 Annual Report on Form 10-K.
23
RESULTS OF CONTINUING
OPERATIONS
Three months ended March 31, 2009
compared to the three months ended March 31, 2008
Revenues, coal sales revenues by segment
and tons sold by segment
The following table depicts revenues for
the three months ended March 31, 2009 and 2008 for the indicated
categories:
|
|
Three months ended
March 31,
|
|
Increase
(Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
$ or Tons
|
|
%
|
|
|
|
(in thousands, except percentages
and per ton data)
|
|
Coal sales
revenues
|
|
$
|
273,816
|
|
|
$
|
226,604
|
|
$
|
47,212
|
|
21
|
%
|
Freight and handling
revenues
|
|
|
8,634
|
|
|
|
11,283
|
|
|
(2,649
|
)
|
(23
|
)%
|
Other
revenues
|
|
|
22,516
|
|
|
|
14,038
|
|
|
8,478
|
|
60
|
%
|
Total
revenues
|
|
$
|
304,966
|
|
|
$
|
251,925
|
|
$
|
53,041
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons sold
|
|
|
4,680
|
|
|
|
4,850
|
|
|
(170
|
)
|
(4
|
)%
|
Coal sales revenue per
ton
|
|
$
|
58.51
|
|
|
$
|
46.72
|
|
$
|
11.79
|
|
25
|
%
|
The following table depicts coal sales
revenues by operating segment for three months ended March 31, 2009 and
2008:
|
|
Three months ended
March 31,
|
|
Increase
(Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
$
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Central
Appalachian
|
|
$
|
184,122
|
|
|
$
|
146,792
|
|
$
|
37,330
|
|
25
|
%
|
Northern
Appalachian
|
|
|
60,251
|
|
|
|
45,221
|
|
|
15,030
|
|
33
|
%
|
Illinois Basin
|
|
|
18,723
|
|
|
|
17,894
|
|
|
829
|
|
5
|
%
|
Ancillary
|
|
|
10,720
|
|
|
|
16,697
|
|
|
(5,977
|
)
|
(36
|
)%
|
Total coal sales
revenues
|
|
$
|
273,816
|
|
|
$
|
226,604
|
|
$
|
47,212
|
|
21
|
%
|
The following table depicts tons sold by
operating segment for the three months ended March 31, 2009 and
2008:
|
|
Three months ended
March 31,
|
|
Increase
(Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
Tons
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Central
Appalachian
|
|
|
2,769
|
|
|
|
2,882
|
|
(113
|
)
|
(4
|
)%
|
Northern
Appalachian
|
|
|
1,108
|
|
|
|
976
|
|
132
|
|
14
|
%
|
Illinois Basin
|
|
|
590
|
|
|
|
600
|
|
(10
|
)
|
(2
|
)%
|
Ancillary
|
|
|
213
|
|
|
|
392
|
|
(179
|
)
|
(46
|
)%
|
Total tons
sold
|
|
|
4,680
|
|
|
|
4,850
|
|
(170
|
)
|
(4
|
)%
|
Coal
sales revenues—Coal sales
revenues are derived from sales of produced coal and brokered coal contracts.
Coal sales revenues increased for the three months ended March 31, 2009 compared to the three months ended March 31,
2008 due to a 25% increase in sales realization per ton
resulting from favorable
pricing on new or amended short- and long-term contracts entered into throughout
2008. Partially offsetting the impact of
improved realization per ton was a 4% decrease in tons
sold.
24
Central
Appalachian. Coal sales revenues from our Central
Appalachian segment for the three months ended March 31, 2009
increased over the same period in 2008 primarily due to an increase of
$15.55 per ton, which was driven by higher
average prices of our coal sold pursuant to supply agreements. Partially offsetting the increase in
average prices was a 4% decrease in tons sold.
Northern
Appalachian. For the
three months ended March 31, 2009, our Northern Appalachian coal sales
revenues increased due to an increase of $8.08 per ton resulting from higher average
prices of coal sold under coal supply contracts. Additionally, we experienced an
increase in tons sold, primarily from our Sentinel and Harrison complexes, as production increased toward targeted levels.
Illinois Basin. The increase in coal sales revenues
from our Illinois Basin segment for the three months ended March 31,
2009 was due to
an increase of $1.91 per
ton, partially offset by a 2% decrease in tons sold.
Ancillary. Our Ancillary segment’s coal sales
revenues are comprised of coal sold under brokered coal contracts. For the three months ended March 31,
2009, our Ancillary coal sales revenues decreased due to a 46% decrease in tons
sold related to the expiration of certain coal supply agreements. The decrease
in tons sold was partially offset by an increase of $7.66 per ton resulting from
higher average prices.
Freight
and handling revenues—Freight and handling revenues represent
reimbursement of freight and handling costs for certain shipments for which we
initially pay the costs and are then reimbursed by the customer. Freight and
handling revenues and costs decreased for the three months ended March 31,
2009 compared to the comparable period of 2008 primarily due to
decreased sales
volumes. Additionally, transportation rates and fuel surcharges have
decreased as a result of decreased fuel prices subsequent to the first quarter
of 2008.
Other
revenues—The increase in other revenues for the
three months ended March 31, 2009 compared to the three months ended March 31,
2008 were due to increases in contract buydown income and
contract mining revenue. Partially offsetting these increases was decreased
revenue generated by coalbed methane wells owned jointly by our subsidiary, CoalQuest, and CDX Gas, LLC
(“CDX”) and decreased sales of scrap materials.
Costs and expenses
The following table depicts cost of
operations for the three months ended March 31, 2009 and 2008 for the indicated
categories:
|
|
Three months ended
March 31,
|
|
Increase
(Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
$
|
|
%
|
|
|
|
(in thousands, except percentages
and per ton data)
|
|
Cost of coal
sales
|
|
$
|
231,965
|
|
|
$
|
208,804
|
|
$
|
23,161
|
|
11
|
%
|
Freight and handling
costs
|
|
|
8,634
|
|
|
|
11,283
|
|
|
(2,649
|
)
|
(23
|
)%
|
Cost of other
revenues
|
|
|
9,336
|
|
|
|
8,935
|
|
|
401
|
|
4
|
%
|
Depreciation, depletion and
amortization
|
|
|
26,263
|
|
|
|
21,957
|
|
|
4,306
|
|
20
|
%
|
Selling, general and
administrative expenses
|
|
|
10,611
|
|
|
|
8,526
|
|
|
2,085
|
|
24
|
%
|
Gain on sale of
assets
|
|
|
(78
|
)
|
|
|
(211
|
)
|
|
133
|
|
(63
|
)%
|
Total costs and
expenses
|
|
$
|
286,731
|
|
|
$
|
259,294
|
|
$
|
27,437
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of coal sales per
ton
|
|
$
|
49.57
|
|
|
$
|
43.05
|
|
$
|
6.52
|
|
15
|
%
|
25
The following table depicts cost of coal
sales by operating segment for the three months ended March 31, 2009 and
2008:
|
|
Three months ended
March 31,
|
|
Increase
(Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
$
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Central
Appalachian
|
|
$
|
155,831
|
|
|
$
|
133,180
|
|
$
|
22,651
|
|
17
|
%
|
Northern
Appalachian
|
|
|
52,378
|
|
|
|
45,160
|
|
|
7,218
|
|
16
|
%
|
Illinois Basin
|
|
|
16,213
|
|
|
|
15,951
|
|
|
262
|
|
2
|
%
|
Ancillary
|
|
|
7,543
|
|
|
|
14,513
|
|
|
(6,970
|
)
|
(48
|
)%
|
Cost of coal
sales
|
|
$
|
231,965
|
|
|
$
|
208,804
|
|
$
|
23,161
|
|
11
|
%
|
Cost
of coal sales—For the three months ended March 31, 2009, our cost of coal sales increased
compared to the three
months ended March 31, 2008
primarily as a result of a 15% increase in cost per
ton.
Central
Appalachian. Cost of coal
sales from our Central Appalachian segment increased to $56.27 per ton for the three months ended March 31, 2009
from $46.21 per ton for the three months ended March 31,
2008 primarily as a result of increased labor and
benefits, repairs and maintenance and royalty expenses. Labor and benefit costs increased due to wage increases in the second half of
2008 in an effort to remain competitive in a tight labor market. Repairs and maintenance costs increased
as a result of several major repairs performed at certain of our Central
Appalachian complexes. Royalties increased for the three months ended March 31,
2009 due to an increase in sales realization on tons sold and to increased
mining of leased reserves.
Further impacting the increase in cost of coal sales were increases in
severance taxes, diesel
fuel, site preparation and maintenance costs and related
supplies.
Northern
Appalachian. Our Northern
Appalachian segment cost of coal sales per ton increased to $47.30 for the three months ended March 31, 2009 from
$46.27 for the three months ended March 31, 2008 due to increased labor and benefits in the second half of 2008
in order to maintain continuity of our labor force. We also experienced
increases in operating supplies and royalty
expenses. Partially
offsetting these increases was a decrease in repairs and maintenance, transportation
and purchased coal
costs.
Illinois Basin. For the three months ended March 31, 2009,
our Illinois Basin cost of coal sales increased by
$0.90 per ton primarily due to increased
labor and benefits and repairs and maintenance costs. Labor
and benefits increased in the second half of 2008 as a result
of increased wages in an effort to retain skilled miners. Additionally, repairs and
maintenance costs have increased due to two major repairs on underground mining equipment during
the three months ended
March 31, 2009 with no comparable repairs performed in the first quarter of
2008.
Ancillary. Cost of coal sales from our Ancillary
segment decreased for the three months ended March 31,
2009 primarily due to a
decrease in purchased coal costs related to the expiration of certain brokered
coal contracts throughout
2008 and continuing into 2009.
Cost
of other revenues—For the
three months ended March
31, 2009, cost of other
revenues increased primarily due to increases in labor and benefits and ash disposal transportation costs.
Partially offsetting the increase was a decrease in gathering fees related to coalbed
methane wells owned jointly by our subsidiary, CoalQuest, and CDX and costs related to the sale of parts
and equipment in the first quarter of 2008.
Depreciation, depletion and amortization—Depreciation, depletion and amortization
expense increased for the
three months ended March 31, 2009 primarily as a result of capital spending
throughout 2008 and in the first quarter 2009, as well as a decrease in
amortization income related to the completion of shipments subsequent to the
first quarter of 2008 under a below market contract. These increases were partially offset by
a decrease in amortization of coalbed methane well development
costs.
26
Selling,
general and administrative expenses—Selling, general and administrative
expenses for the three
months ended March 31, 2009
increased primarily due to increases in professional fees, taxes and licenses
and share-based compensation.
Adjusted EBITDA by Operating
Segment
Adjusted EBITDA represents net
income or loss attributable
to International Coal
Group, Inc. before deducting net interest expense, income taxes,
depreciation, depletion,
amortization and
noncontrolling interest. Adjusted EBITDA is presented
because it is an important supplemental measure of our performance used by our
chief operating decision maker in such areas as capital investment and
allocation of resources. It is considered “adjusted” as we adjust EBITDA for
noncontrolling interest. Other companies in our
industry may calculate Adjusted EBITDA differently than we do, limiting its
usefulness as a comparative measure. Adjusted EBITDA is reconciled to its most
comparable GAAP measure on page 28 of this Quarterly Report on Form 10-Q
and in Note 13 to our condensed consolidated financial statements for
the three months ended March 31, 2009.
The following table depicts operating
segment Adjusted EBITDA for the three months ended March 31, 2009 and
2008:
|
|
Three months ended
March 31,
|
|
Increase
(Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
$
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Central
Appalachian
|
|
$
|
29,433
|
|
|
$
|
15,578
|
|
$
|
13,855
|
|
89
|
%
|
Northern
Appalachian
|
|
|
10,152
|
|
|
|
1,795
|
|
|
8,357
|
|
466
|
%
|
Illinois Basin
|
|
|
2,871
|
|
|
|
2,348
|
|
|
523
|
|
22
|
%
|
Ancillary
|
|
|
2,042
|
|
|
|
(5,133
|
)
|
|
7,175
|
|
*
|
%
|
Total Adjusted
EBITDA
|
|
$
|
44,498
|
|
|
$
|
14,588
|
|
$
|
29,910
|
|
205
|
%
|
* not meaningful
Central
Appalachian. Adjusted EBITDA for the three months ended March 31, 2009
increased compared to the three months ended March 31, 2008 primarily due to a $15.55 per ton increase in sales
realization, resulting in $5.49 per ton increase in profit margins.
Partially offsetting the increase in profit margins was a decrease of
approximately 113,000 tons sold.
Northern
Appalachian. The increase in Adjusted EBITDA was due
to a combination of an increase in sales realization of $8.08 per ton, resulting in increased profit
margins of $7.05 per ton, as well as an increase of
approximately 132,000 tons sold.
Illinois Basin. Adjusted EBITDA increased during the three months ended March 31, 2009
related to an
increase in sales
realization of $1.91 per ton compared to the three months ended March 31,
2008.
Ancillary. The increase in Adjusted EBITDA was primarily
due to an increase in sales
realization of $7.66 per ton, resulting in profit margins of $9.32 per ton.
Further impacting the increase in Adjusted EBITDA from our Ancillary segment
were increases in contract buydown income and contract mining revenue. Partially
offsetting these increases was decreased revenue generated by coalbed methane
wells owned jointly by our
subsidiary, CoalQuest, and
CDX and a decrease of
approximately 179,000 tons sold related to the expiration
of brokered coal contracts
throughout 2008.
27
Reconciliation of
Adjusted EBITDA to Net income (loss) by Operating Segment
The following tables reconcile Adjusted
EBITDA to net income (loss) by operating segment for the three months ended
March 31, 2009 and 2008:
|
|
Three months ended
March 31,
|
|
Increase
(Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
$
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Central
Appalachian
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to International
Coal Group, Inc.
|
|
$
|
8,079
|
|
|
$
|
(719
|
)
|
$
|
8,798
|
|
*
|
%
|
Depreciation, depletion and
amortization
|
|
|
17,590
|
|
|
|
15,846
|
|
|
1,744
|
|
11
|
%
|
Interest expense,
net
|
|
|
908
|
|
|
|
451
|
|
|
457
|
|
101
|
%
|
Income tax
expense
|
|
|
2,856
|
|
|
|
—
|
|
|
2,856
|
|
100
|
%
|
Adjusted
EBITDA
|
|
$
|
29,433
|
|
|
$
|
15,578
|
|
$
|
13,855
|
|
89
|
%
|
|
|
Three months ended
March 31,
|
|
Increase
(Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
$
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Northern
Appalachian
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to International
Coal Group, Inc.
|
|
$
|
3,217
|
|
|
$
|
(491
|
)
|
$
|
3,708
|
|
*
|
%
|
Depreciation, depletion and
amortization
|
|
|
5,575
|
|
|
|
2,127
|
|
|
3,448
|
|
162
|
%
|
Interest expense,
net
|
|
|
131
|
|
|
|
152
|
|
|
(21
|
)
|
(14
|
)%
|
Income tax
expense
|
|
|
1,200
|
|
|
|
—
|
|
|
1,200
|
|
100
|
%
|
Noncontrolling interest
|
|
|
29
|
|
|
|
7
|
|
|
22
|
|
314
|
%
|
Adjusted
EBITDA
|
|
$
|
10,152
|
|
|
$
|
1,795
|
|
$
|
8,357
|
|
466
|
%
|
|
|
Three months ended
March 31,
|
|
Increase
(Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
$
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Illinois Basin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to International
Coal Group, Inc.
|
|
$
|
842
|
|
|
$
|
478
|
|
$
|
364
|
|
76
|
%
|
Depreciation, depletion and
amortization
|
|
|
1,710
|
|
|
|
1,813
|
|
|
(103
|
)
|
(6
|
)%
|
Interest expense,
net
|
|
|
69
|
|
|
|
57
|
|
|
12
|
|
21
|
%
|
Income tax
expense
|
|
|
250
|
|
|
|
—
|
|
|
250
|
|
100
|
%
|
Adjusted
EBITDA
|
|
$
|
2,871
|
|
|
$
|
2,348
|
|
$
|
523
|
|
22
|
%
|
|
|
Three months ended
March 31,
|
|
Increase
(Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
$
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Ancillary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to International
Coal Group, Inc.
|
|
$
|
(8,445
|
)
|
|
$
|
(11,181
|
)
|
$
|
2,736
|
|
24
|
%
|
Depreciation, depletion and
amortization
|
|
|
1,388
|
|
|
|
2,171
|
|
|
(783
|
)
|
(36
|
)%
|
Interest expense,
net
|
|
|
11,910
|
|
|
|
11,911
|
|
|
(1
|
)
|
*
|
%
|
Income tax
benefit
|
|
|
(2,811
|
)
|
|
|
(8,034
|
)
|
|
5,223
|
|
65
|
%
|
Adjusted
EBITDA
|
|
$
|
2,042
|
|
|
$
|
(5,133
|
)
|
$
|
7,175
|
|
140
|
%
|
28
|
|
Three months ended
March 31,
|
|
Increase
(Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
$
|
|
%
|
|
|
|
(in thousands, except percentages)
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to International
Coal Group, Inc.
|
|
$
|
3,693
|
|
|
$
|
(11,913
|
)
|
$
|
15,606
|
|
*
|
%
|
Depreciation, depletion and
amortization
|
|
|
26,263
|
|
|
|
21,957
|
|
|
4,306
|
|
20
|
%
|
Interest expense,
net
|
|
|
13,018
|
|
|
|
12,571
|
|
|
447
|
|
4
|
%
|
Income tax expense (benefit)
|
|
|
1,495
|
|
|
|
(8,034
|
)
|
|
9,529
|
|
*
|
%
|
Noncontrolling interest
|
|
|
29
|
|
|
|
7
|
|
|
22
|
|
314
|
%
|
Adjusted
EBITDA
|
|
$
|
44,498
|
|
|
$
|
14,588
|
|
$
|
29,910
|
|
205
|
%
|
* not meaningful
Liquidity and Capital
Resources
Our business is capital intensive and
requires substantial capital expenditures for, among other things, purchasing
and upgrading equipment used in developing and mining our coal lands, as well as
remaining in compliance with environmental laws and regulations. Our principal
liquidity requirements are to finance our coal production, fund capital
expenditures and service our debt and reclamation obligations. We may also
engage in acquisitions from time to time. Our primary sources of liquidity to
meet these needs are cash
on hand, cash flows from
sales of our coal, other income, borrowings under our senior credit
facility and capital equipment financing
arrangements.
We believe the principal indicators of
our liquidity are our cash position and remaining availability under our credit
facility. As of March 31, 2009, our available liquidity was $93.0 million, including cash of
$66.6 million and $26.4 million available for borrowing under
our $100.0 million senior credit facility. Total debt represented
47% of our total
capitalization at March 31, 2009. Our total capitalization represents our
current and long-term debt combined with our total stockholders’
equity.
In February 2009, we executed an
amendment to our $100.0 million credit facility that affected certain 2009 debt
covenants. The amendment modified the maximum permitted leverage and minimum
interest coverage ratios. The amendment also decreased the maximum capital
spending and added a minimum liquidity requirement. Debt covenants for years
subsequent to 2009 were not affected by the amendment. Management believes, based
on currently available information, that we will be able to meet the financial
covenants in our credit facility through the end of 2009. Current market
volatility, surrounding coal prices in particular, has made it extraordinarily
difficult to forecast results for 2010 and beyond. Accordingly, there is
uncertainty as to whether we will be able to remain in compliance with our debt
covenants for those periods. We will seek a waiver or amendment from our lenders
or pursue other alternatives for any period we believe we will not be in
compliance with these financial covenants.
The recent and unprecedented disruption
in the current credit markets has had a significant adverse impact on a number
of financial institutions. At this time, our liquidity has not been materially
impacted by the current credit environment and we do not expect that it will be
materially impacted in the near-future. We will continue to closely monitor
our liquidity and the credit markets. However, we cannot predict with any
certainty the impact to us of any further disruption in the credit
environment.
29
We currently
expect our total capital expenditures will be approximately $90.0 million to $95.0 million in 2009, substantially all of which will
be for equipment and infrastructure at our existing operations. Cash paid for
capital expenditures was approximately $18.8 million for the three months ended
March 31, 2009. We have funded and will continue to fund these capital
expenditures from our internal operations and financing arrangements. We believe that these sources of
capital and our $50.0 million equipment revolving credit facility with
Caterpillar Financial Services Corporation will be sufficient to fund our
anticipated capital expenditures under our current budget plan through the first
quarter of 2010. Although we expect to experience some periods of tight
liquidity, we expect to be able to manage through such periods. To the
extent necessary, management believes it has flexibility in the timing of the cash requirements by managing the pace of capital spending. In addition,
management may from time to time raise additional capital through the
disposition of non-core assets or engaging in sale-leaseback transactions. The
need and timing of seeking additional capital in the future will be subject to
market conditions.
Approximately
$9.1 million of cash paid for capital expenditures in the three months ended
March 31, 2009 was attributable to our Central Appalachian operations. This
amount represents investments of approximately $2.9 million in our Beckley
mining complex and $2.1 million at Hazard, as well as additional investments of
$4.1 million for upgrades at the remaining Central Appalachian operations. We
paid approximately $6.3 million at our Northern Appalachian operations in the
three months ended March 31, 2009, approximately $2.5 million of which was for
investments in our Sentinel property. Expenditures of approximately $1.8 million
for our Illinois Basin operations were for ongoing operations improvements.
Approximately $1.6 million of cash paid for capital expenditures for the three
months ended March 31, 2009 was within our Ancillary segment for safety
equipment, as well as for upgrades at various other subsidiaries.
More stringent regulatory requirements of the mining industry demand substantial capital expenditures to meet safety
standards. For the three months ended March 31, 2009, we spent $0.4 million to meet these standards and
anticipate spending an additional $4.3 million for the remainder of
2009.
Cash Flows
Net cash provided by operating
activities was $18.5
million for the three
months ended March 31, 2009, an increase of $36.5 million from the same period in 2008.
This increase is attributable to an increase in net income of $29.3 million after adjustment for non-cash
charges and a $7.2 million increase due to the change in net operating assets and
liabilities.
For the three months ended March 31,
2009, net cash used in investing activities was $18.9 million compared to $33.9 million for the three months ended
March 31, 2008. For the three months ended March 31, 2009, $18.8 million of cash was used to
upgrade and support existing mining operations
compared to $34.1 million in the same period of
2008.
Net cash provided by financing activities of $3.1 million for the three months ended March
31, 2009 was due to borrowings on our long-term debt of $9.1
million used to finance equipment. Offsetting the borrowings were repayments on our short- and long-term debt of $5.5 million and deferred finance costs of $0.5 million paid to amend our credit
facility. We also financed $3.8 million of
equipment through additional financing arrangements.
30
Credit Facility and Long-term Debt
Obligations
As of March 31, 2009 our total long-term
indebtedness consisted of the following (in thousands):
|
|
March 31,
2009
|
|
9.00% Convertible Senior Notes,
due 2012, net of debt
discount of $16,367
|
|
$
|
208,633
|
|
10.25% Senior Notes, due
2014
|
|
|
175,000
|
|
Equipment
notes
|
|
|
53,300
|
|
Capital leases and
other
|
|
|
6,030
|
|
Total
|
|
|
442,963
|
|
Less current
portion
|
|
|
(18,292
|
)
|
Long-term
debt
|
|
$
|
424,671
|
|
Other
As a regular part of our business, we
review opportunities for, and engage in discussions and negotiations concerning,
the acquisition of coal mining assets and interests in coal mining companies,
and acquisitions of, or combinations with, coal mining companies. When we
believe that these opportunities are consistent with our growth plans and our
acquisition criteria, we will make bids or proposals and/or enter into letters
of intent and other similar agreements, which may be binding or nonbinding, that
are customarily subject to a variety of conditions and usually permit us to
terminate the discussions and any related agreement if, among other things, we
are not satisfied with the results of our due diligence investigation. Any
acquisition opportunities we pursue could materially affect our liquidity and
capital resources and may require us to incur indebtedness, seek equity capital
or both. There can be no assurance that additional financing will be available
on terms acceptable to us, or at all.
Additionally, we have other long-term
liabilities, including, but not limited to, mine reclamation and mine closure
costs, below-market coal supply agreements and “black lung” costs, and some of
our subsidiaries have long-term liabilities relating to retiree health and other
employee benefits.
Our ability to meet our long-term debt
obligations will depend upon our future performance, which in turn, will depend
upon general economic, financial and business conditions, along with
competition, legislation and regulation—factors that are largely beyond our
control. We believe that cash flow from operations, together with other
available sources of funds, including additional borrowings under our credit
facility and equipment
credit facility, will be
adequate at least through the first quarter of 2010 for making required payments
of principal and interest on our indebtedness and for funding anticipated
capital expenditures and working capital requirements. Although we expect to experience some periods of
tight liquidity, we expect to be able to manage through such periods. To the
extent necessary, management believes it has some flexibility to manage its cash requirements by controlling the pace and timing
of capital
spending, utilizing
availability under its credit facilities, reducing certain costs and idling
high-cost operations. In
addition, management may from time to time raise additional capital through the
disposition of non-core assets or engaging in sale-leaseback transactions.
However, we cannot assure you that our operating results, cash flow and capital
resources will be sufficient for repayment of our debt obligations in the
future.
Our Convertible Senior Notes (the
“Convertible Notes”) were not convertible as of March 31, 2009. In the event that the Convertible Notes were to become
convertible and a
significant number of the holders were to convert their notes prior to maturity,
we may not have enough available funds at
any particular time to make the required repayments. Under these circumstances,
we would look to WL Ross & Co. LLC, our banking group and other potential
lenders to obtain short-term funding until such time that we could secure necessary financing on a
long-term basis. The availability of any such financing would depend upon the
circumstances at the time, including the terms of any such financing, and other
factors.
31
Recent Accounting
Pronouncements
Fair Value
Measurements. In September
2006, the FASB issued SFAS No. 157, Fair Value
Measurements (“SFAS
No. 157”). SFAS No. 157 clarifies the definition of fair value,
establishes a framework for measuring fair value and expands the disclosures on
fair value measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. Adoption of SFAS No. 157 did not
have a material impact on our financial position, results of operations or cash
flows; however, adoption did result in additional information being included in
the footnotes accompanying our consolidated financial
statements.
In February 2008, the FASB issued
FASB Staff Position (“FSP”) FAS No. 157-2, Effective Date of
FASB Statement No. 157
(“FSP FAS No. 157-2”). FSP FAS No. 157-2 permits delayed adoption of SFAS
No. 157 for certain non-financial assets and liabilities, which are not
recognized at fair value on a recurring basis, until fiscal years, and interim
periods within those fiscal years, beginning after November 15, 2008.
Adoption of FSP
FAS No. 157-2 did not have
a material impact on our financial position, results of operations or cash
flows.
In October 2008, the FASB issued FSP No.
FAS 157-3, Determining
the
Fair Value of a
Financial Asset When the Market for That Asset Is Not
Active (“FSP FAS No. 157-3”). FSP FAS No. 157-3 clarified the application of
SFAS No. 157 in an inactive market. It demonstrated how the fair value of a
financial asset is determined when the market for that financial asset is
inactive. FSP FAS No.
157-3 was effective upon
issuance, including prior periods for which financial statements had not been
issued. Adoption of FSP FAS
No. 157-3 did not have a
material impact on our financial position, results of operations or cash
flows.
In April 2009, the FASB issued FSP No.
FAS 157-4, Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly (“FSP No. FAS
157-4”). FSP No. FAS 157-4 provides additional guidance on estimating fair value
when the volume and level of activity for an asset or liability have
significantly decreased in relation to normal market activity for the asset or
liability. FSP FAS No. 157-4 also provides additional guidance on circumstances
that may indicate that a transaction is not orderly. FSP FAS No. 157-4 is
effective for interim and annual periods ending after June 15, 2009. We do not
believe that adoption of FSP No. FAS 157-4 will materially impact our financial
position, results of operations or cash flows.
Convertible
Debt. In May 2008, the FASB
issued FSP APB 14-1, Accounting for
Convertible Debt Instruments That May be Settled in Cash Upon
Conversion (Including Partial
Cash Settlement) (“FSP APB
14-1”). FSP APB 14-1 requires the liability and equity components of convertible
debt instruments that may be settled in cash upon conversion to be separately
accounted for in a manner that reflects the issuer’s nonconvertible debt
borrowing rate. To allocate the proceeds from a convertible debt offering in
this manner, a company would first need to determine the carrying amount of the
liability component, which would be based on the fair value of a similar
liability (excluding any embedded conversion options). The resulting debt
discount would be amortized over the period during which the debt is expected to
be outstanding as additional non-cash interest expense. FSP APB 14-1 was
effective for financial statements for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years, and
has been applied retrospectively for all periods
presented. We have determined our non-convertible borrowing rate would have been
11.7% at issuance. The effect of adoption of FSP APB 14-1 was as follows:
32
|
|
December 31,
2008
|
|
|
|
As Previously
Reported
|
|
|
Adjustment
|
|
|
As
Adjusted
|
|
Property, plant, equipment and
mine development
|
|
$
|
1,068,146
|
|
|
$
|
1,151
|
|
|
$
|
1,069,297
|
|
Debt issuance costs,
net
|
|
|
10,635
|
|
|
|
(173
|
)
|
|
|
10,462
|
|
Total
assets
|
|
|
1,349,669
|
|
|
|
978
|
|
|
|
1,350,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital
leases
|
|
|
434,920
|
|
|
|
(17,369
|
)
|
|
|
417,551
|
|
Deferred tax
liability
|
|
|
42,468
|
|
|
|
6,935
|
|
|
|
49,403
|
|
Total
liabilities
|
|
|
854,844
|
|
|
|
(10,434
|
)
|
|
|
844,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in-capital
|
|
|
643,480
|
|
|
|
13,517
|
|
|
|
656,997
|
|
Retained
deficit
|
|
|
(145,066
|
)
|
|
|
(2,105
|
)
|
|
|
(147,171
|
)
|
Total International Coal Group, Inc.
stockholders’
equity
|
|
|
494,790
|
|
|
|
11,412
|
|
|
|
506,202
|
|
Total liabilities and
stockholders’ equity
|
|
|
1,349,669
|
|
|
|
978
|
|
|
|
1,350,647
|
|
|
|
Three months
ended
March 31,
2008
|
|
|
|
As Previously
Reported
|
|
|
Adjustment
|
|
|
As
Adjusted
|
|
Interest expense,
net
|
|
$
|
(11,981
|
)
|
|
$
|
(590
|
)
|
|
$
|
(12,571
|
)
|
Income tax
benefit
|
|
|
7,811
|
|
|
|
223
|
|
|
|
8,034
|
|
Net loss
|
|
|
(11,546
|
)
|
|
|
(367
|
)
|
|
|
(11,913
|
)
|
Business
Combinations. In December
2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations (“SFAS
No. 141(R)”). SFAS No. 141(R) will significantly change the accounting
for business combinations. Under SFAS No. 141(R), an acquiring entity will
be required to recognize all the assets acquired and liabilities assumed in a
transaction at the acquisition-date fair value with limited exceptions. SFAS
No. 141(R) will change the accounting treatment for certain specific
acquisition-related items including: (i) expensing acquisition-related
costs as incurred, (ii) valuing noncontrolling interests at fair value at
the acquisition date and (iii) expensing restructuring costs associated
with an acquired business. SFAS No. 141(R) also includes a substantial
number of new disclosure requirements. SFAS No. 141(R) is to be applied to
any business combination for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after
December 15, 2008. Upon adoption, SFAS No. 141(R) will impact the
accounting for our future business combinations, as well as for tax uncertainties and
valuation allowances from prior acquisitions.
Noncontrolling
Interests. In December
2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements (“SFAS No. 160”). SFAS
No. 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary
(minority interest) is an ownership interest in the consolidated entity that
should be reported as equity in the consolidated financial statements and
separate from the parent company’s equity. Among other requirements, this
statement requires consolidated net income to be reported at amounts that
include the amounts attributable to both the parent and the noncontrolling
interest. It also requires disclosure, on the face of the consolidated statement
of operations, of the amounts of consolidated net income attributable to the
parent and to the noncontrolling interest. SFAS No. 160 is effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. Adoption of SFAS No. 160
impacted the presentation
of noncontrolling interest in our balance sheet and statements of
operations and cash flows. The impact of the changes in
presentation was not material.
33
Derivative
Instruments. In March 2008,
the FASB issued SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities – an amendment of FASB Statement
No. 133 (“SFAS
No. 161”). SFAS No. 161 requires additional disclosures for derivative
instruments and hedging activities that include how and why an entity uses
derivatives, how these instruments and the related hedged items are accounted
for under FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, and related interpretations and how
derivative instruments and related hedged items affect the entity’s financial
position, results of operations and cash flows. SFAS No. 161 is effective
for fiscal years, and interim periods within those fiscal years, beginning after
November 15, 2008. Adoption of SFAS No. 161 did not impact the
footnotes accompanying our consolidated financial
statements.
GAAP
Hierarchy. In
May 2008, the FASB issued SFAS No. 162, The Hierarchy of
Generally Accepted Accounting Principles (“SFAS No. 162”). SFAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles. SFAS No. 162 directs the hierarchy to the
entity, rather than the independent auditors, as the entity is responsible for
selecting accounting principles for financial statements that are presented in
conformity with generally accepted accounting principles. SFAS No. 162 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 31, 2008. Adoption of SFAS No. 162 did not
have a material impact on our financial position, results of operations or cash
flows.
Share-Based
Payments. In June 2008, the
FASB issued FSP
EITF 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities
(“FSP EITF 03-6-1”). FSP EITF 03-6-1 clarifies that all
outstanding unvested share-based payment awards that contain rights to
nonforfeitable dividends participate in undistributed earnings with common
shareholders. Awards of this nature are considered participating securities and
the two-class method of computing basic and diluted earnings per share must be
applied. FSP EITF 03-6-1 is effective for fiscal
years beginning after December 15, 2008. Adoption of FSP EITF 03-6-1 did not have a material
impact on our financial position, results of operations or cash
flows.
Financial
Instruments. In June
2008, the FASB ratified EITF 07-5, Determining Whether
an Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own
Stock (“EITF 07-5”). EITF
07-5 provides that an entity should use a two step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instrument’s contingent exercise and
settlement provisions. It also clarifies the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning
after December 15, 2008. Adoption of EITF 07-5 did not have a material impact on
our financial position, results of operations or cash flows.
Impairments. In April 2009, the FASB issued FSP FAS
No. 115-2 and FAS No. 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments (“FSP FAS No. 115-2 and FAS No.
124-2”). FSP FAS No. 115-2 and FAS No. 124-2 modifies the other-than-temporary
impairment guidance for debt securities through increased consistency in the
timing of impairment recognition and enhanced disclosures related to the credit
and noncredit components of impaired debt securities that are not expected to be
sold. In addition, increased disclosures are required for both debt and equity
securities regarding expected cash flows, credit losses and an aging of
securities with unrealized losses. FSP FAS No. 115-2 and FAS No. 124-2 is
effective for interim and annual reporting periods that end after June 15, 2009.
We do not believe that adoption of FSP FAS No. 115-2 and FAS No. 124-2 will
materially impact our financial position, results of operations or cash
flows.
Fair Value
Instruments. In April 2009, the FASB issued FSP FAS
No. 107-1 and APB 28-1, Interim Disclosures
about Fair Value of Financial Instruments (“FSP FAS No. 107-1 and APB 28-1”). FSP
FAS No. 107-1 and APB 28-1 requires fair value disclosures for financial
instruments that are not reflected in the condensed consolidated balance sheets
at fair value to be disclosed on a quarterly basis, providing quantitative and
qualitative information about fair value estimates. FSP FAS No. 107-1 and APB
28-1 is effective for interim reporting periods ending after June 15, 2009. We
do not believe that adoption of FSP FAS No. 107-1 and APB 28-1 will materially
impact our financial position, results of operations or cash
flows.
34
Critical Accounting Policies, Estimates
and Assumptions
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect reported amounts. These estimates and assumptions
are based on information available as of the date of the financial statements.
Accounting measurements at interim dates inherently involve greater reliance on
estimates than at year-end. The results of operations for the three months ended
March 31, 2009 are not necessarily indicative of results
that can be expected for the full year. Please refer to the section entitled
“Critical Accounting Policies and Estimates” of Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” in
our Annual Report on Form 10-K for the year ended December 31, 2008 for a
discussion of our critical accounting policies and
estimates.
Interest rate
risk. In May 2006, we
entered into an Interest Rate Collar Agreement, which became effective on
March 31, 2007 and expired March 31, 2009, to hedge our
interest risk on $200.0 million notional amount of revolving
debt. The interest rate collar was designed as a cash flow hedge to offset the
impact of changes in the LIBOR interest rate above 5.92% and below 4.80%. This
agreement was entered into in conjunction with our amended and restated credit facility dated June 23,
2006. We recognized the change in the fair value of this
agreement in the income statement in the period of change.
Market price
risk. We are exposed to
market price risk in the normal course of mining and selling coal. As of March 31, 2009,
99% of 2009 planned
production is committed for sale, leaving approximately 1% uncommitted for sale. A hypothetical
decrease of $1.00 per ton in the market price for coal would not have a material impact on
pre-tax
income.
Item 4.
|
Controls and
Procedures
|
Disclosure Controls and
Procedures
We maintain a set of disclosure controls
and procedures designed to provide reasonable assurance that information
required to be disclosed by us in reports that we file or submit under the
Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. Our disclosure controls and procedures are
also designed to provide reasonable assurance that information required to be
disclosed in the reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including the Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure. As of the end of the period covered by this Quarterly
Report on Form 10-Q, an evaluation of the effectiveness of our disclosure
controls and procedures was carried out under the supervision and with the
participation of our management, including the Chief Executive Officer and Chief
Financial Officer. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and
procedures are effective.
Changes in Internal Control Over
Financial Reporting
There have been no changes in our
internal control over financial reporting during the first quarter of fiscal
2009 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
35
PART II
On August 23, 2006, a survivor of
the Sago mine accident, Randal McCloy, filed a complaint in the Kanawha Circuit
Court in Kanawha
County, West Virginia. The claims brought by Randal McCloy
and his family against us and certain of our subsidiaries, and against W.L.
Ross & Co., and Wilbur L. Ross, Jr., individually, were dismissed on
February 14, 2008, after the parties reached a confidential settlement.
Sixteen other complaints have been filed in Kanawha Circuit Court by the
representatives of many of the miners who died in the Sago mine accident, and
several of these plaintiffs have filed amended complaints to expand the group of
defendants in the cases. The complaints allege various causes of action against
us and our subsidiary, Wolf Run Mining Company, one of our shareholders, W.L.
Ross & Co., and Wilbur L. Ross Jr., individually, related to the
accident and seek compensatory and punitive damages. In addition, the plaintiffs
also allege causes of action against other third parties, including claims
against the manufacturer of Omega block seals used to seal the area where the
explosion occurred and against the manufacturer of self-contained self-rescuer
(“SCSR”) devices worn by the miners at the Sago mine. Some of these third
parties have been dismissed from the actions upon settlement. The amended
complaints add other of our subsidiaries to the cases, including ICG, Inc., ICG,
LLC and Hunter Ridge Coal Company, unnamed parent, subsidiary and affiliate
companies of us, W.L. Ross & Co., and Wilbur L. Ross Jr., and other
third parties, including a provider of electrical services and a supplier of
components used in the SCSR devices. We believe that we are appropriately
insured for these and other potential claims, and we have fully paid our
deductible applicable to our insurance policies. In addition to the dismissal of
the McCloy claim, we have settled and dismissed five other actions. These
settlements required the release of us, our subsidiaries, W.L. Ross &
Co., and Wilbur L. Ross, Jr. Some of the plaintiffs involved in one of the
dismissed actions have sought permission from the Supreme Court of Appeals of
West Virginia to appeal the settlement, alleging that
the settlement negotiated by the decedent’s estate should not have been approved
by the trial court. The trial court overruled those plaintiffs’ objections to
the settlement, and, although the West Virginia Supreme Court of Appeals refused
to stay the effectiveness of the settlement, the plaintiffs’ petition for appeal
to the West Virginia Supreme Court of Appeals was recently presented to the
court. The court has deferred its decision as to whether it will hear the
appeal, pending its ruling on an unrelated case that shares similar issues. We
will vigorously defend ourselves against the remaining complaints and any appeal
of any prior settlements.
Allegheny Energy Supply (“Allegheny”),
the sole customer of coal produced at our subsidiary Wolf Run Mining Company’s
(“Wolf Run”) Sycamore No. 2 mine, filed a lawsuit against Wolf Run, Hunter
Ridge Holdings, Inc. (“Hunter Ridge”), and us in state court in Allegheny
County, Pennsylvania on December 28, 2006, and amended its complaint on
April 23, 2007. Allegheny claims that we breached a coal supply contract
when we declared force majeure under the contract upon idling the Sycamore
No. 2 mine in the third quarter of 2006. The Sycamore No. 2 mine was
idled after encountering adverse geologic conditions and abandoned gas wells
that were previously unidentified and unmapped. The amended complaint also
alleges that the production stoppages constitute a breach of the guarantee
agreement by Hunter Ridge and breach of certain representations made upon
entering into the contract in early 2005, a claim that Allegheny has since
voluntarily dropped. Allegheny claims that it will incur costs in excess of
$100.0 million to purchase replacement coal over the life of the contract. We,
Wolf Run and Hunter Ridge answered the amended complaint on
August 13, 2007, disputing all of the remaining claims. On November 3, 2008, we,
Wolf Run and Hunter Ridge filed an amended answer and
counterclaim against the plaintiffs seeking to void the coal supply agreement
due to, among other things, fraudulent inducement and conspiracy. The
counterclaim alleges further that Allegheny breached a confidentiality agreement
with Hunter Ridge, which prohibited the solicitation of
its employees. After the coal supply agreement was executed, Allegheny hired the
then-president of Anker Coal Group, Inc. (now Hunter Ridge) who engaged in negotiations on behalf
of Wolf Run and Hunter Ridge. In addition to seeking a declaratory
judgment that the coal supply agreement and guaranty be deemed void and
unenforceable and rescission of the contracts, the counterclaim also seeks
compensatory and punitive damages.
36
On December 6, 2007, the Kentucky
Waterways Alliance, Inc., and The Sierra Club sued the U.S. Army Corps of
Engineers (the “ACOE”) in the United States District Court for the Western
District of Kentucky, Louisville Division, asserting that a permit to construct
five valley fills was issued unlawfully to our Hazard subsidiary for its Thunder
Ridge Surface mine. The suit alleges that the ACOE failed to comply with the
requirements of both Section 404 of the Clean Water Act and the National
Environmental Policy Act. Hazard intervened in the suit to protect our
interests. The ACOE suspended the Section 404 permit on December 26,
2007 in order to evaluate the issues raised by the plaintiffs. The ACOE
completed its evaluation on March 25, 2009. Only a day prior, the U.S.
Environmental Protection Agency (the “EPA”) stated its intention to more
closely scrutinize Section 404 permitting decisions by the ACOE. On March 27,
2009, the ACOE reinstated Hazard’s permit.
Pursuant to earlier agreements with the plaintiffs in the litigation, we
provided thirty (30) days notice to plaintiffs’ counsel of Hazard’s intent to
proceed with activities authorized under the permit. After such notice,
the plaintiffs have agreed to amend the earlier agreement to allow Hazard
partial use of the reinstated permit, including construction of an additional
valley fill, thus delaying the plaintiffs' move to seek a temporary restraining
order and subsequent injunction to block Hazard’s use of the permit. If the court ultimately finds that the permit is unlawful,
production could be materially affected at the Thunder Ridge Surface mine.
The EPA’s heightened scrutiny will likely
render the process of obtaining ACOE permits for coal mining activities in
Appalachia more difficult.
On January 7, 2008, Saratoga
Advantage Trust filed a class action lawsuit in the U.S. District Court for the
Southern District of West Virginia against us and certain of our officers and
directors. The complaint asserts claims under Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder,
based on alleged false and misleading statements in the registration statements
filed in connection with our November 2005 reorganization and December 2005
public offering of common stock. In addition, the complaint challenges other of
our public statements regarding our operating condition and safety record. We
intend to vigorously defend the action.
On July 3, 2007, Taylor Environmental
Advocacy Membership, Inc. (“T.E.A.M.”) filed a petition to appeal the issuance
of ICG Tygart Valley, LLC’s (“Tygart Valley”) Surface Mine Permit U-2004-06 against
the West Virginia Department of Environmental Protection (the “WVDEP”) in an
action before the West Virginia Surface Mine Board (the “Board”). On December
10, 2007, the Board remanded the permit to the WVDEP for revision to certain
provisions related to pre-mining water monitoring and cumulative hydrologic
impacts. The WVDEP issued a modification on April 1, 2008 addressing those
issues. T.E.A.M. filed an appeal of the WVDEP’s approval of the permit
modification on April 30, 2008. On October 7, 2008, the Board issued an order
remanding the permit to the WVDEP requiring Tygart Valley to address a technical issue related to
projected post-mining water quality. Tygart Valley has prepared and submitted a permit
modification to alleviate the Board’s concerns. All site development has been
suspended until the WVDEP has approved the permit modification. If the
WVDEP issues the permit as modified, there will be additional opportunity for
appeal by T.E.A.M.
In addition, from time to time, we are
involved in legal proceedings arising in the ordinary course of business. These
proceedings include assessments of penalties for citations and orders asserted
by MSHA and other regulatory agencies, none of which are expected by management
to, individually or in the aggregate, have a material adverse effect on us. In
the opinion of management, we have recorded adequate reserves for liabilities
arising in the ordinary course and it is management’s belief there is no
individual case or group of related cases pending that is likely to have a
material adverse effect on our financial condition, results of operations or
cash flows.
There have been no material changes in
the risk factors that were
disclosed in our Annual Report on Form 10-K for the fiscal year ended December
31, 2008.
37
Item 2.
|
Unregistered Sales of Securities
and Use of Proceeds
|
There
were no unregistered sales of equity securities during the three months ended
March 31, 2009.
ISSUER PURCHASES OF EQUITY
SECURITIES
|
Period
|
|
Total Number of Shares Purchased
(1)
|
|
Average Price Paid per
Share(1)
|
|
Total Number of Shares Purchased
as Part of Publicly Announced Plans or Programs
|
|
Approximate Dollar Value of Shares
that May Yet be Purchased Under the Plans or
Programs
|
January 1, 2009 through January
31, 2009
|
|
—
|
|
$
|
—
|
|
—
|
|
—
|
February 1, 2009 through February
28, 2009
|
|
—
|
|
|
—
|
|
—
|
|
—
|
March 1, 2009 through March 31,
2009
|
|
4,768
|
|
|
1.76
|
|
—
|
|
—
|
Total
|
|
4,768
|
|
$
|
1.76
|
|
—
|
|
—
|
(1)
|
During
the three months ended March 31, 2009, we withheld 4,768 shares of common
stock from employees to satisfy estimated tax obligations upon the vesting
of restricted stock under the terms of our 2005 Equity and Performance
Incentive Plan. The value of the common stock that was withheld was based
upon the closing price of our common stock on the applicable vesting
dates.
|
38
10-Q EXHIBIT
INDEX
2.1
|
|
Business Combination Agreement
among International Coal Group, Inc. (n/k/a ICG, Inc.), ICG Holdco, Inc.
(n/k/a International Coal Group, Inc.), ICG Merger Sub, Inc., Anker Merger
Sub, Inc. and Anker Coal Group, Inc., dated as of March 31,
2005
|
|
(A
|
)
|
|
|
|
2.2
|
|
First Amendment to the Business
Combination Agreement among International Coal Group, Inc. (f/k/a ICG
Holdco, Inc.), ICG, Inc. (f/k/a International Coal Group, Inc.), ICG
Merger Sub, Inc., Anker Merger Sub, Inc. and Anker Coal Group, Inc., dated
as of May 10, 2005
|
|
(A
|
)
|
|
|
|
2.3
|
|
Second Amendment to the Business
Combination Agreement among International Coal Group, Inc. (f/k/a ICG
Holdco, Inc.), ICG, Inc. (f/k/a International Coal Group, Inc.), ICG
Merger Sub, Inc., Anker Merger Sub, Inc. and Anker Coal Group, Inc.,
effective as of June 29, 2005
|
|
(B
|
)
|
|
|
|
2.4
|
|
Business Combination Agreement
among International Coal Group, Inc. (n/k/a ICG, Inc.), ICG Holdco, Inc.
(n/k/a International Coal Group, Inc.), CoalQuest Merger Sub LLC,
CoalQuest Development LLC and the members of CoalQuest Development LLC,
dated as of March 31, 2005
|
|
(A
|
)
|
|
|
|
2.5
|
|
First Amendment to the Business
Combination Agreement among International Coal Group, Inc. (f/k/a ICG
Holdco, Inc.), ICG, Inc. (f/k/a International Coal Group, Inc.), CoalQuest
Merger Sub LLC, CoalQuest Development LLC and the members of CoalQuest
Development LLC, dated as of May 10, 2005
|
|
(A
|
)
|
|
|
|
2.6
|
|
Second Amendment to the Business
Combination Agreement among International Coal Group, Inc. (f/k/a ICG
Holdco, Inc.), ICG, Inc. (f/k/a International Coal Group, Inc.), CoalQuest
Merger Sub LLC, CoalQuest Development LLC and the members of CoalQuest
Development LLC, effective as of June 29, 2005
|
|
(B
|
)
|
|
|
|
3.1
|
|
Form of Second Amended and
Restated Certificate of Incorporation of International Coal Group,
Inc.
|
|
(E
|
)
|
|
|
|
3.2
|
|
Form of Second Amended and
Restated By-laws of International Coal Group, Inc.
|
|
(F
|
)
|
|
|
|
4.1
|
|
Form of certificate of
International Coal Group, Inc. common stock
|
|
(C
|
)
|
|
|
|
4.2
|
|
Registration Rights Agreement by
and between International Coal Group, Inc., WLR Recovery Fund II, L.P.,
Contrarian Capital Management LLC, Värde Partners, Inc., Greenlight
Capital, Inc., and Stark Trading, Shepherd International Coal Holdings
Inc.
|
|
(A
|
)
|
|
|
|
4.4
|
|
Indenture, dated June 23,
2006, by and among ICG, the guarantors party thereto and The Bank of New
York Trust Company, N.A., as trustee
|
|
(G
|
)
|
|
|
|
4.5
|
|
Form of 10.25%
Note
|
|
(G
|
)
|
|
|
|
4.6
|
|
Indenture, dated July 31,
2007, by and among ICG, the guarantors party thereto and The Bank of New
York Trust Company, N.A., as trustee
|
|
(J
|
)
|
|
|
|
4.7
|
|
Form of Senior Convertible 9.00%
Note
|
|
(J
|
)
|
|
|
|
4.8
|
|
Registration Rights Agreement,
dated July 31, 2007, by and among ICG, the guarantors party thereto and
UBS Securities LLC
|
|
(J
|
)
|
|
|
|
4.9
|
|
Registration Rights Agreement
dated as of May 16, 2008 by and between ICG and Fairfax Financial Holdings
Limited
|
|
(K
|
)
|
|
|
|
10.1
|
|
Amendment No. 1 to the Second
Amended and Restated Credit Agreement, dated as of January 31, 2007, among
ICG, LLC, as borrower, International Coal Group, Inc. and certain of its
subsidiaries as guarantors, the lenders party thereto, J.P. Morgan Chase
Securities Inc. and UBS Securities LLC, as joint lead arrangers and joint
bookrunners, JPMorgan Chase Bank, N.A. and CIT Capital USA Inc., as
co-syndication agents, Bank of America, N.A. and Wachovia Bank, N.A., as
co-documentation agents, JPMorgan Chase Bank and Bank of America, N.A., as
issuing banks, UBS Loan Finance LLC, as swingline lender, and UBS AG,
Stamford Branch, as issuing bank, as administrative agent and as
collateral agent for the lenders
|
|
(H
|
)
|
|
|
|
10.2
|
|
Second Amendment and Limited
Waiver to Second Amended and Restated Credit Agreement, effective as of
July 31, 2007, by and among ICG, LLC, as borrower, the guarantors
party thereto, the lenders party thereto, J.P. Morgan Securities Inc. and
UBS Securities LLC, as joint lead arrangers and joint bookrunners,
JPMorgan Chase Bank, N.A. and CIT Capital Securities LLC, as
co-syndication agents, Bank of America, N.A. and Wachovia Bank, N.A. as
co-documentation agents, JPMorgan Chase Bank, N.A. as an issuing bank, UBS
Loan Finance LLC, as swingline lender, and UBS AG, Stamford Branch, as an
issuing bank, administrative agent and collateral
agent
|
|
(J
|
)
|
|
|
|
10.3
|
|
Amendment No. 3 to the Second
Amended and Restated Credit Agreement, dated as of February 20, 2009,
among ICG, LLC, as borrower, International Coal Group, Inc. and certain of
its subsidiaries as guarantors, the lenders party thereto, J.P. Morgan
Chase Securities Inc. and UBS Securities LLC, as joint lead arrangers and
joint bookrunners, JPMorgan Chase Bank, N.A. and CIT Capital USA Inc., as
co-syndication agents, Bank of America, N.A. and Wachovia Bank, N.A., as
co-documentation agents, JPMorgan Chase Bank and Bank of America, N.A., as
issuing banks, UBS Loan Finance LLC, as swingline lender, and UBS AG,
Stamford Branch, as issuing bank, as administrative agent and as
collateral agent for the lenders
|
|
(M
|
)
|
|
|
|
|
|
|
31.1
|
|
Certification of the Principal
Executive Officer
|
|
(D
|
)
|
|
|
|
31.2
|
|
Certification of the Principal
Financial Officer
|
|
(D
|
)
|
|
|
|
32.1
|
|
Certification Pursuant to §906 of
the Sarbanes Oxley Act of 2002
|
|
(D
|
)
|
(A)
|
|
Previously filed as an exhibit to
Amendment No. 1 to International Coal Group, Inc.’s Registration
Statement on Form S-1 (Reg. No. 333-124393), filed on June 15,
2005 and incorporated herein by reference.
|
|
|
(B)
|
|
Previously filed as an exhibit to
Amendment No. 2 to International Coal Group, Inc.’s Registration
Statement on Form S-1 (Reg. No. 333-124393), filed on June 30,
2005 and incorporated herein by reference.
|
|
|
(C)
|
|
Previously filed as an exhibit to
Amendment No. 3 to International Coal Group, Inc.’s Registration
Statement on Form S-1 (Reg. No. 333-124393), filed on
September 28, 2005 and incorporated herein by
reference.
|
|
|
(D)
|
|
Filed
herewith.
|
|
|
(E)
|
|
Previously filed as an exhibit to
Amendment No. 4 to International Coal Group, Inc.’s Registration
Statement on Form S-1 (Reg. No. 333-124393), filed on
October 24, 2005.
|
|
|
(F)
|
|
Previously filed as an exhibit to
Amendment No. 5 to International Coal Group, Inc.’s Registration
Statement on Form S-1 (Reg. No. 333-124393), filed on
November 9, 2005.
|
|
|
(G)
|
|
Previously filed as an exhibit to
International Coal Group, Inc.’s Current Report on Form 8-K filed on
June 26, 2006.
|
|
|
(H)
|
|
Previously filed as an exhibit to
International Coal Group, Inc.’s Annual Report on Form 10-K for the year
ended December 31, 2006 filed on March 1,
2007.
|
|
|
(I)
|
|
Previously filed as an exhibit to
International Coal Group, Inc.’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2007 filed on May 8,
2007.
|
|
|
(J)
|
|
Previously filed as an exhibit to
International Coal Group, Inc.’s Current Report on Form 8-K filed on
July 31, 2007.
|
|
|
(K)
|
|
Previously filed as an exhibit to
Fairfax Financial Holdings Limited’s Amendment No. 1 to Form Schedule 13D
filed on May 29, 2008.
|
|
|
|
(L)
|
|
Previously filed as an exhibit to
International Coal Group, Inc.’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2008 filed on August 8,
2008.
|
|
|
|
(M)
|
|
Previously filed as an exhibit to
International Coal Group, Inc.’s Annual Report on Form 10-K for the year
ended December 31, 2008 filed on February 27,
2009.
|
40
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
INTERNATIONAL COAL GROUP,
INC.
|
|
|
By:
|
|
/s/ Bennett K.
Hatfield
|
Name:
|
|
Bennett K.
Hatfield
|
Title:
|
|
President, Chief Executive Officer and Director
|
|
|
(Principal Executive
Officer)
|
|
|
By:
|
|
/s/ Bradley W.
Harris
|
Name:
|
|
Bradley W.
Harris
|
Title:
|
|
Senior Vice President, Chief
Financial Officer and Treasurer
|
|
|
(Principal Financial
Officer)
|
Date: May 8, 2009
41